A situation in the Balance of Payments where the outflows on the current account (imports of goods and services, factor-income payments) exceed inflows, so the country spends more abroad than it earns on current transactions.
- The current account covers trade in goods (the trade balance), trade in services, primary income (interest, dividends), and secondary income (remittances).
- A CAD means net borrowing from or selling assets to the rest of the world; it is financed by capital-account inflows such as FDI and foreign portfolio investment.
- It is usually expressed as a percentage of GDP; a CAD of about 2 to 2.5 percent of GDP is often considered sustainable for India (verify the latest figure).
- India typically runs a goods-trade deficit (oil and gold imports) partly offset by services exports and remittances; see concept balance of payments.
- A wide CAD can pressure the rupee and the foreign-exchange reserves; the 1991 crisis followed an unsustainable external position.
The composition of the current account, the financing of a CAD by capital inflows, and the sustainability threshold as a share of GDP are core external-sector facts.
Trade deficit (goods only) is narrower than the current account deficit (goods plus services, income, transfers); a CAD is not automatically bad if it funds productive imports and is financed by stable capital.
Current outflows exceed inflows; goods plus services, income and transfers; financed by capital-account inflows.