Many people think that a firm gets exposed to currency risk owing to imports, exports and foreign borrowing. This is an incomplete picture. Suppose a firm switches from importing steel to buying imported steel from a domestic dealer.
A big CAD is a bad thing — much like a big fiscal deficit.
A country is always better off with a small or zero CAD or ideally
a surplus. The CAD is a drag on growth.
The large CAD is a profound drag on India’s outlook.
If we managed to reduce the CAD, things would get better.
Ajay Shah writes on India’s inflation crisis and how this affects the country’s monetary policy.
by Dani Rodrik, Project Syndicate, and Ajay Shah Editor’s note: There has been further discussion of the Rodrik assertion that there will be no more manufacturing led growth miracles by a number of economists at the Economist.
by Ajay Shah For many decades, India was one of the most protectionist countries in the world. This did great damage to growth and knowledge in India. Tariffs dropped from ridiculous levels to ridiculous levels in the early 1990s and then got stuck there. Yashwant Sinha, as Finance Minister, initiated a remarkable program of cutting …