Multiple choice

Which of the following are the reasons for India's burgeoning current account deficit in 2012 - 13?

  1. Inelastic demand for gold
  2. Excessive import of crude oil
  3. Fiscal crisis in European countries
  4. High inflation

  1. Only 1 and 2

  2. Only 1, 2 and 3

  3. Only 2 and 3

  4. All 1, 2, 3 and 4
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The current account is that part of Balance of Payment (BOP) account which details the balance of goods and services traded with the rest of the world. The excess of imports of goods and services over their export is referred to as Current Account Deficit (CAD). Robust demand for gold and continuing high crude oil prices (which India imports a lot), along with decelerating growth in emerging and developing economies, are responsible for adversely affecting India's trade balance. High rate of inflation persisting in the economy attracts cheap imports and makes export costly in the international market. High fiscal deficit run by the government is one factor behind the high inflation.

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