Nexus between Current Account Balance, Price Stability, and Economic Growth in India: An empirical analysis

A prominent theme of structuralist macroeconomics has been the crucial role that the current account imbalance plays in shaping macroeconomic developments in emerging market economies. The persistent current account deficit may cause macroeconomic instability, notably in the general price level. The balance of payment crisis in India in the late 1980s and early 1990s is a case in point. The post-COVID macroeconomic development also hinted at the significant role of the current account balance. This study seeks to examine the relationship between the current account component of the balance of payments, price stability (captured by the Consumer Price Index) and economic growth (captured by GDP) in the economy of India, from 1996. At the outset, we check how the current account deficit explains the inflationary conditions, and the surplus supports stability – and their contributions to economic growth. The interdependence is found significant in causality and integration analyses.