Factors influencing India's current account balance : implication for achieving its external sector sustainability

Abstract

Using annual data for the period 1980-1981 to 2014-2015, the study explores the impact of crude oil imports and real exchange rate on India's current account performance. Utilizing the recent co-integration econometric tools on a current account balance model, the findings contrary to the theoretical prediction revealed that crude oil import significantly improves the current account balance in the long run. Furthermore, the fiscal balance and financial development significantly contribute to the current account performance, whereas real exchange rate, trade openness and age dependency cause deterioration in India's current account balance in the long run. These results have significant policy implications on the sustainability of the current account balance in India.