Current and Capital Account — Mains Strategy

Mains Strategy

For Mains, a mere factual understanding of Current and Capital Account is insufficient; an analytical and evaluative approach is paramount. Structure your answers logically, starting with clear definitions and moving to detailed analysis.

For questions on India's CAD, delve into both structural causes (e.g., energy dependence, gold imports) and cyclical factors (e.g., global commodity prices, domestic demand). When discussing financing, differentiate between stable (FDI, NRI deposits) and volatile (FPI) capital flows.

For capital account liberalization, present a balanced view, highlighting both benefits (e.g., growth, technology) and risks (e.g., volatility, financial instability). Always integrate the role of the RBI and government policies, citing specific measures like FDI policy reforms, ECB norms, and exchange rate management .

Connect the topic to broader macroeconomic stability, foreign exchange reserves , and the policy trilemma. Use recent data points (e.g., latest CAD/GDP ratio) to substantiate your arguments.

Practice writing within word limits, focusing on coherent arguments, clear articulation, and critical analysis. Incorporate Vyyuha's analytical insights, such as the transition from a closed to an open economy, to add depth to your answers.