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?
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?
Solution
A current account deficit means the country is paying out more on imports and other current transactions than it is receiving. Higher crude oil and electronic-component imports raise demand for foreign currency and can put pressure on the rupee.
Option 1: Better farm output is mainly a domestic production issue; it does not itself create this Balance of Payments pressure.
Option 3: GST collections are part of the government's fiscal revenue, not the Balance of Payments.
Option 4: Foreign investment enters the capital/financial account and usually brings foreign currency into India, which can support the rupee.
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