"I am not worried about the deficit,” Ronald Reagan once quipped on the campaign trail, “It is big enough to take care of itself.” That is a unique privilege enjoyed by United States – its trade deficit may breach the 2017 watermark of $552 billion, fiscal deficit is at over $800 billion and total debt is over $21 trillion. Thanks to the status of the dollar as the currency of last resort, it can fund and thrive despite the deficits and debt.
India, like other countries, must shape up or slip into contagion and crisis. This Thursday, markets shrugged off optimism and embraced fear. Mercifully the price of Brent crude dipped from $86 per barrel to around $80, allowing the currency a breather rally to end the week around `73.50 for a dollar. The rupee’s weekend level, however, is scarcely stable and vulnerable to the petro puzzle.
The trajectory of crude prices depends on geopolitics, conjecture about the impact of sanctions on Iran, and the economics of global growth, which determine the level of demand and thus pricing. Again, oil is just one of the threat factors. India’s current account deficit is also the result of earning in rupees and spending in dollars—of falling forex inflows and rising demand for dollars."
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