Consider the following statements: Hike in global oil prices can widen the Current Account Deficit (CAD) of India Higher CAD can lead to depreciation of the currency Which among the above statements is/ are correct?
Q. Consider the following statements: Hike in global oil prices can widen the Current Account Deficit (CAD) of India Higher CAD can lead to depreciation of the currency Which among the above statements is/ are correct?
Answer: Both 1 & 2
Notes:
  1. Hike in global oil prices can widen the Current Account Deficit (CAD) of India: This statement is correct. India imports over 80% of its oil requirement. A rise in global crude oil prices increases India's import bill and widens the gap between exports and imports. This leads to higher current account deficit.
  2. Higher CAD can lead to depreciation of the currency: This statement is also correct. Increase in CAD reflects greater demand for foreign currency to fund imports. This pushes down the rupee value against dollar due to excess rupee and limited dollar supply.

 

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