Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development
Q5. Analyse the causes behind the widening current account deficit in India. Explain its implications for the Balance of Payments. Suggest structural reforms to improve external sector sustainability. (10 M)
Difficulty Level: Medium
Reference: NIE
Why the question
Rising concerns over current account deficit, rupee pressure and BoP stress amid global uncertainty make external sector sustainability.Key Demand of the question
The question requires analysing structural and cyclical causes behind India’s CAD, examining how it affects overall BoP stability, and suggesting long-term structural reforms rather than short-term fixes.Structure of the Answer:
Introduction
Briefly define CAD and link it with external vulnerability and macroeconomic stability.Body
- Drivers of widening CAD: Import-intensive growth pattern with energy dependence and subdued merchandise export performance
- Implications for BoP stability: Leads to exchange rate pressures, reserve drawdown and heightened vulnerability to volatile capital flows
- Structural reform pathway: Focus on export competitiveness, energy transition and stable long-term capital inflows
Conclusion
End with a forward-looking note on building a resilient and sustainable external sector.
