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What is current account deficit (CAD)? What are the reasons for moderating CAD in the current economic scenario? Examine its implications on the Indian economy.

Topic: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

6. What is current account deficit (CAD)? What are the reasons for moderating CAD in the current economic scenario? Examine its implications on the Indian economy. 250 words)

Difficulty level: Tough

Reference: Indian Express

Why the question:

While data released by the government on Wednesday shows that India’s exports and imports declined by 6.59% and 3.63% respectively in January, there are indications that the current account deficit (CAD) – difference between exports and imports – will moderate despite the global slowdown triggered by the rising inflation and interest rates.

Key Demand of the question:

To write about the current account deficit, reasons for its moderation and its impact on the Indian economy.

Directive word: 

Examine – When asked to ‘Examine’, we must investigate the topic (content words) in detail, inspect it, investigate it and establish the key facts and issues related to the topic in question. While doing so we should explain why these facts and issues are important and their implications.

Structure of the answer:

Introduction: 

Start by defining current account deficit.

Body:

Frist, write about the factors that have led to moderating current account deficit in the recent past despite major economic slowdown and decline in exports.

Next, write about the impact of moderating current account deficit will have on the Indian economy. Substantiate with facts and examples.

Conclusion:

Conclude by summarising.