The investment imperative

India's external position has been deteriorating for some time, manifesting itself in the current account deficit (CAD), which increased from a negligible 0.3 per cent of GDP in 2004-05 to 4.8 per cent in 2012-13. While capital inflows have been mostly adequate to finance the deficit, this has had a lot to do with global liquidity being strong. With the tide of liquidity expected to turn as the US Federal Reserve plans to reduce liquidity injections, financing the deficit may become more of a problem.

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