A General Trend Analysis of India’s Current Account Balance

Abstract

With economic liberalization in India, a major shift on the foreign exchange front was in the form of switching from a fixed exchange rate regime to flexible exchange rate regime. This shift led to some heavy and sudden fluctuations in the prices and volumes of exports and imports. The present study is an attempt to analyse the overall trends in India’s current account balance during the period 1970-71 to 2010-11. The analysis shows that merchandise trade did not play any role towards the improvements of current account balance. In fact, it deteriorated the current account balance during the time span of the study. On the other hand, invisibles as a whole showed a very small negative growth rate which in effect is negligible. Income head has led buoyancy to current account balance. The overall positive growth of current account balance is basically an indication of good management of current account balance.