An Indian smartphone manufacturer faced higher production costs after the rupee depreciated during a period of rising electronic component import costs and elevated crude oil prices. Which Balance…
Question and options
An Indian smartphone manufacturer faced higher production costs after the rupee depreciated during a period of rising electronic component import costs and elevated crude oil prices. Which Balance of Payments situation most likely caused this pressure on the rupee?
- Rapid agricultural output expansion from improved monsoons
- Persistent current account deficit from a widening trade gap
- Sustained fiscal revenue growth from higher GST collections
- Continuous capital account surplus from foreign investments
Answer and explanation
Correct answer: B - Persistent current account deficit from a widening trade gap
Rising payments for imported components and crude widen the current account deficit, raising demand for dollars and depreciating the rupee, which makes imported inputs costlier. A capital account surplus would support the rupee, and agricultural output or GST collections do not act directly on the rupee.
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