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    Question

    India traditionally runs a large Merchandise Trade

    Deficit (Goods). What is the key component that typically counteracts this to keep the Current Account Deficit (CAD) low?
    A Surplus in the Services Trade Balance and Remittance Inflows. Correct Answer Incorrect Answer
    B High foreign direct investment (FDI) inflows. Correct Answer Incorrect Answer
    C Increase in short-term foreign portfolio investment (FPI). Correct Answer Incorrect Answer
    D Large-scale borrowing from international financial institutions (IFIs). Correct Answer Incorrect Answer

    Solution

    Solution: The Merchandise Trade Deficit (imports of goods exceeding exports of goods) is an inherent feature of India's current account. This deficit is largely offset by a robust Surplus in Services Trade (driven primarily by Information Technology and related services) and high levels of Private Transfer Receipts (remittances from non-resident Indians), which together help keep the overall Current Account Deficit (CAD) to a manageable level (e.g., CAD was contained at 0.2% of GDP in Q1 FY 2025-26).

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