What could persistent current account deficit lead to?

Option 1 -> A persistent current account deficit typically causes currency depreciation, not appreciation, as demand for foreign currency exceeds domestic currency.

Option 2 -> Current account deficits drain foreign exchange reserves rather than increasing them, as more money flows out than comes in.

Option 3 -> To finance ongoing deficits, countries must attract foreign capital through borrowings, FDI, or portfolio investments, creating dependence on external funding.

Option 4 -> A persistent current account deficit indicates ongoing trade deficits, not surpluses, as imports exceed exports.

Hence, Option 3: Dependence on foreign borrowings -> When a country consistently spends more on imports, foreign investments, and transfers than it earns, it must finance this gap through the capital account. This requires attracting foreign capital through borrowings (sovereign debt, external commercial borrowings) or foreign investments. Over time, this creates structural dependence on foreign funding sources, making the economy vulnerable to sudden capital outflows and changes in global investor sentiment. Countries like India have historically managed current account deficits through a combination of foreign borrowings and FDI inflows -> correct