Current Account Deficit and External Sector Vulnerability
The Current Account Deficit (CAD) measures the gap between a country's total imports of goods, services, and transfers and its total exports. A high CAD puts downward pressure on the currency because it signals that more foreign exchange is flowing out than coming in. India's structural CAD is driven primarily by crude oil and gold imports. A weaker rupee worsens the CAD in the short run (imports become more expensive in rupee terms) but can improve it over the medium term as exports become more competitive.
- India's CAD has typically ranged between 1-3% of GDP in normal years; spikes to 4-5% during oil price surges (e.g., 2012-13 at 4.8% of GDP, triggering the taper tantrum currency crisis).
- Foreign Portfolio Investment (FPI) outflows amplify currency depreciation: FPI tracked at US$0.4 billion in FY2025-26 vs. US$7.5 billion the previous year.
- The twin deficit problem: when both fiscal deficit and current account deficit are high simultaneously, currency pressure intensifies.
- Sectors benefiting from rupee depreciation: IT/software exports (priced in USD), garments, pharmaceuticals, leather goods, gems and jewellery.
- Sectors adversely affected: oil refiners (higher crude import costs), aviation (USD-denominated fuel and lease payments), capital goods importers, foreign-educated students.
● Tracked since March 04, 2026 · last seen April 06, 2026 · updates as the daily brief publishes
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