The Indian economy is also fighting against a record current account deficit. The country is importing more than it exports – through imports, a country has to purchase goods using the foreign currency, which strengthens that foreign currency against the domestic currency.
“The only lasting solution to our external sector problem is to reduce the CAD (current account deficit) to its sustainable level,” RBI Governor Duvvuri Subbarao said in the Reuters article. “Reducing the CAD requires structural solutions. RBI has very little policy space or instruments to deliver the needed structural solution. They fall within the ambit of the government.”
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Max Chen contributed to this article.