Indian Economy

Choose the Correct Answer

Correct Answer : Option a

Explanation
Option (a) is correct: The ‘Make in India’ initiative aims to increase foreign direct investment (FDI) and boost the domestic manufacturing sector, which can help reduce the current account deficit. A reduction in the current account deficit generally supports the currency and can lead to a stronger rupee, not a weaker one. Therefore, this factor would be expected to appreciate the rupee, not cause depreciation.

Option (b) is not correct: As the rupee weakens, government subsidies for imported energy and fertilisers could lead to a budget deficit exceeding targets, creating challenges for fiscal planning. The government may face difficult choices between increased borrowing and curbing development spending. Economists warn that if the depreciation trend continues, it could necessitate additional fiscal adjustments or cuts in government programmes, which would weigh on growth prospects. Balancing the need for welfare and infrastructure spending with a depreciating currency could complicate India’s fiscal roadmap in the coming quarters.

Option (c) is not correct: The primary factor is the rise in crude oil prices. Brent crude rose by 0.19%, reaching $75.22 per barrel in futures trading. Higher oil prices lead to increased import costs for India, a net oil importer, thereby raising demand for dollars and pushing the rupee lower. Market analysts believe that geopolitical tensions, particularly in West Asia, have disrupted plans to increase OPEC + oil production. This delay has caused oil prices to surge, with the Organisation of Petroleum Exporting Countries and allies postponing their planned production boost by at least a month.

Option (d) is not correct: The ongoing depreciation also heightens the risk of fiscal strain. As the rupee weakens, government subsidies for imported energy and fertilisers could lead to a budget deficit exceeding targets, creating challenges for fiscal planning. The government may face difficult choices between increased borrowing and curbing development spending. Economists warn that if the depreciation trend continues, it could necessitate additional fiscal adjustments or cuts in government programmes, which would weigh on growth prospects. Balancing the need for welfare and infrastructure spending with a depreciating currency could complicate India’s fiscal roadmap in the coming quarters.