The growing strength of India’s BoP observed in the post reformperiod since the crisis of 1991 continued in 2017-2018. Thisgrowing strength was in spite of a widening current account deficitto the tune of US dollar 12.5 million that is equivalent to 1.7 percent of GDP in 20017-2018. Rising foreign investment together witha sharp revival of inflows of nonresident deposits maintained astrong balance in the capital account visà- vis high level ofreserves. Given such robust external position R.B.I. had deemed itopportune to revisit the issue of full Capital AccountConvertibility. In this scenario, Indian companies hand holdingswith international agencies (taxing loans & equity partnership)plans to make huge investments in retails and infrastructure. Alsomany companies are boosting up their foreign country operations.They are less perturbed about the rising inflation rate, interestrate or the other tight money measures adopted by the Government.This could be due to favorable consolidation exposure and theopportunity in covering their risk in currency future market.
1) What is trade deficit?
2) What according to you would be the reason for India’s growingtrade deficit.
3) Discuss the after effect of full capital accountconvertibility.
4) What are the tight monitory policy measures used in India inthe recent past?
