New Delhi: A fresh warning by an international rating agency indicated that India’s external debt and current account deficit were on their way up and might become a cause for concern some time in the future. A current account deficit occurs when a country spends more on imports and foreign services than it generates by way of export earnings. In other words, more money is flowing out than flowing in.
The agency added that India’s economy remains robust, but if this imbalance continues to rise, it could spill over into the rupee, making overseas borrowing costlier. A weak rupee inflates the prices of imported commodities such as oil, electronics, and fertilizers, thereby fueling inflation.
The government of India is already working in that direction by promoting exports, encouraging foreign investment, and cutting down on unnecessary imports. The country is also striving for self-reliance regarding energy production and manufacturing, thereby reducing its dependence on other nations.
This may sound like a complicated issue, but it is a very real one. If the rupee falls too much, goods start becoming more expensive. This, therefore, calls for the country to handle its debt and trade balance effectively.
