New Delhi, Nov. 3 -- A small current account deficit may not offer immunity against rupee stress. India's external constraints are changing. Policy will need to adapt.

The current account deficit is the central gauge of external vulnerability. It measures the economy's net external financing requirement, which must be met by foreign capital inflows. When those inflows fall short, the adjustment ultimately falls on foreign exchange reserves, domestic asset prices or the currency.

On that basis, India appears substantially more insulated than it was 10 years ago. Its trend current account deficit has fallen below 1% of gross domestic product (GDP) from more than 4% a little over a decade ago. Even with oil around $100 a barrel, we expect ...