MACROECONOMIC DETERMINANTS OF CURRENT ACCOUNT BALANCE IN POST-LIBERALISED INDIAN ECONOMY: A TIME-SERIES ANALYSIS

Abstract

This paper analyses the determinants of India’s Current Account Balance after 1991 economic reforms. Variables taken for the analysis are current account balance, growth rate, foreign direct investment, inflation, gross fiscal deficit, exchange rate, external debt and crude oil price. The time series data for these variables are taken for the period 1991-2022. Vector Error Correction Model has been applied for the empirical analysis. Empirical study shows that exchange rate, external debt, gross fiscal deficit and crude oil price have negative impact on current account balance in the short-run whereas foreign direct investment, growth rate and inflation have positive impact on current account balance in the short-run. Foreign direct investment and inflation have negative impact on current account balance in the long-run whereas gross fiscal deficit and growth rate have positive impact on current account balance in the long-run. The findings of this study will provide valuable insights for researchers and policymakers in the formulation of effective policies to manage India’s current account balance both in the short term and in the long term.