India’s CAD paradox

We had written about India’s large and troubling current account deficit (CAD) in early January and how the theories of currencies and finance seem to be failing in India. One would have thought a priori that the massive depreciation of the rupee would have set in motion ‘automatic stabilisers’ to narrow the deficit, through making exports more competitive and imports costlier. Since then, things have only got worse, although the rupee has stabilised at relatively weak levels. 

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