Economics • Indian EconomyEasy
What does the 'Current Account Deficit (CAD)' in India's balance of payments indicate?
A. Country's total foreign exchange reserves have dropped below zero
B. Value of imported goods, services, and transfers exceeds the value of exports✓ Correct Answer
C. Foreign portfolio investors are withdrawing capital rapidly
D. Government expenditure exceeds tax collections
💡 Solution & Explanation
The current account deficit reflects a net outflow of currency on trade, services, and unilateral transfers, occurring when a country spends more abroad than it earns. Unlike capital account deficits or budget deficits, this metric specifically measures macroeconomic imbalances in international trade and service flows. India traditionally runs a current account deficit largely due to heavy petroleum and gold imports.
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