Economics • Indian EconomyEasy
What does the term 'Current Account Deficit (CAD)' signify in India's balance of payments?
A. When total government expenditures exceed total tax revenues in a fiscal year.
B. When the value of imported goods, services, and transfer payments exceeds the value exported by the country.✓ Correct Answer
C. When foreign direct investments flowing into the country are lower than foreign portfolio outflows.
D. When the central bank's foreign exchange reserves fall below three months of import cover.
💡 Solution & Explanation
Current Account Deficit arises when the aggregate outflows for merchandise, services, and unilateral transfers exceed total foreign earnings on current transactions. Fiscal deficit instead reflects the shortfall between government revenues and expenditures, while capital account transactions manage investments and borrowings. Monitoring this macroeconomic indicator is crucial for assessing a nation's external stability and foreign exchange reserves.
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