Which among the following would adversely affect the current account deficit (CAD) of the India?
1. Increase in the Global Oil Prices
2. Increase in the Gold Imports
3. Decrease in the prices of Edible Oils
Choose the correct option from the codes given below:

Answer: [B] Only 1 & 2

Factors Affecting CAD

We should know that CAD refers to net flow of income out of the country, barring capital movements.  Current Account consists of two major items viz. Merchandise exports & imports and Invisible exports and imports, which refer to sale of services. Higher CAD leads to greater vulnerability of economy on “external front” and could lead to depreciation of the currency. Since, Oil constitutes about one-third India’s total imports, fluctuation in it’s prices will impact India’s Current Account Deficit. Please note that apart from hike in global oil prices, the other factors which may pose a risk to CAD sustainability are:

This question is a part of GKToday's Integrated IAS General Studies Module