UPSC Prelims 2020 Q52: Indian Economy – External Sector & Balance Of Payments
With reference to the international trade of India at present, which of the following
statements is/are correct?
1. India’s merchandise exports are less than its merchandise imports.
2. India’s imports of iron and steel, chemicals, fertilisers and machinery have decreased in recent
years.
3. India’s exports of services are more than its imports of services.
4. India suffers from an overall trade/current account deficit.
Select the correct answer using the code given below:
- (a) 1 and 2 only
- (b) 2 and 4 only
- (c) 3 only
- (d) 1, 3 and 4 only
Answer: (d) 1, 3 and 4 only
Explanation
India's trade position (around 2020)
| Statement | Verdict | Fact |
|---|---|---|
| 1. Merchandise exports are less than merchandise imports | Correct | India ran a merchandise trade deficit of about $161 billion in 2019-20 |
| 2. Imports of iron and steel, chemicals, fertilisers and machinery have fallen | Incorrect | Iron and steel imports fell, but chemicals, fertilisers and machinery imports rose |
| 3. Services exports exceed services imports | Correct | India earns a services surplus, led by IT and business services |
| 4. India has an overall trade/current account deficit | Correct | The current account deficit was about 2.1% of GDP in 2018-19 |
How the accounts fit:
| Account | Balance |
|---|---|
| Merchandise trade | Large deficit |
| Services | Surplus |
| Current account | Usually a deficit |
Answer: (d) 1, 3 and 4 only.
Why each option is right or wrong
- (a) Incorrect. Statement 2 is false because chemical, fertiliser and machinery imports grew.
- (b) Incorrect. It keeps the false statement 2 and leaves out the merchandise deficit.
- (c) Incorrect. Statements 1 and 4 are also true: India runs merchandise and current account deficits.
- (d) CORRECT. India has a merchandise deficit, a services surplus and an overall current account deficit.
Key point
India: merchandise trade deficit, services surplus (IT), and usually a current account deficit.
Remember
Goods deficit, services surplus, CAD overall.
Common mistakes
- Assuming the services surplus cancels the merchandise deficit; it only reduces it.
- Accepting the claim that all listed imports fell; only iron and steel did.
- Confusing a single surplus year (2020-21, during COVID) with the usual pattern.
Exam tip
India's trade in one line: goods deficit, services surplus, current account usually in deficit.
Sources
- Economic Survey 2019-20, Vol 2, Ch 3 (External Sector)
- Reserve Bank of India — Balance of Payments data