An Evaluation of Current Account Behaviour Amidst Globalisation

Abstract

The study analysed the current account response to international economic factors namely, oil price volatility, exchange rate of Indian rupee, trade openness, net foreign assets and home country inflation using data spanning 2001 Q1 to 2020 Q4. The study revealed that a hike in oil price volatility, net foreign assets and home country inflation leads to current account deficit increase. The main reason being the failure of intertemporal hypothesis for the Indian economy. The study concludes that for maintaining healthy current account position, rupee should be allowed for free conversion and trade barriers should be reduced to the minimum. Also, private saving should be encouraged to provide a buffer for elevated oil import bill and efforts should be made to cut the oil imports as far as possible.