UPSC Prelims 2011 Q6: Indian Economy – External Sector & Balance Of Payments
In terms of economy, the visit by foreign nationals to witness the XIX Commonwealth Games
in India amounted to
- (a) Export
- (b) Import
- (c) Production
- (d) Consumption
Answer: (a) Export
Explanation
Foreign visitors at the Commonwealth Games: export or import?
In Balance of Payments accounting, tourism (travel) is a service, and selling that service to a foreigner counts the same way as selling any other good abroad.
| Option | Verdict | Reason |
|---|---|---|
| (a) Export | Correct | A foreign national spending money in India (on tickets, hotels, food) is India exporting a service (tourism) and earning foreign exchange |
| (b) Import | Incorrect | Import would be Indians spending abroad, the reverse flow |
| (c) Production | Incorrect | It is a trade/BoP concept, not a production category |
| (d) Consumption | Incorrect | Describes the act of spending, but the economic classification asked for is export |
Rule of thumb:
| Who spends | Where | BoP treatment |
|---|---|---|
| Foreigner | In India | Export (of tourism services) |
| Resident Indian | Abroad | Import (of tourism services) |
Answer: (a) Export.
Why each option is right or wrong
- (a) CORRECT. A foreigner spending in India is treated as an export of (tourism) services.
- (b) Incorrect. Import would be the reverse: Indians spending money abroad.
- (c) Incorrect. This is a Balance of Payments classification, not a production category.
- (d) Incorrect. 'Consumption' describes the spending act but misses the correct trade classification: export.
Key point
Foreign tourist spending in India = export of services. Indian tourist spending abroad = import of services.
Remember
Foreign tourist spending here = export of services.
Common mistakes
- Thinking 'export' only applies to physical goods leaving the country.
- Reversing the direction: treating a foreigner's visit as an import.
- Picking 'consumption', which describes the spending but not its trade classification.
Exam tip
Tourism is an invisible export. Money coming in from a foreign visitor is always an export of services.
Sources
- International Monetary Fund — Balance of Payments and International Investment Position Manual, Sixth Edition (BPM6), 2009 (travel services)
- Ministry of Tourism, Government of India — India Tourism Statistics 2010 (foreign exchange earnings)