Analysing India’s trade bottlenecks

Statement 1 is incorrect. Typically, the RBI uses open market operations to sell government securities to drain money from the system and control inflation. Buying government securities would inject money into the system, potentially fueling inflation further. Statement 2 is correct. Selling dollars in the market - If the rupee is rapidly depreciating, the RBI might intervene in the foreign exchange market by selling dollars from its reserves. This increased supply of dollars in the market can help stabilize the exchange rate and slow down the depreciation of the rupee. Statement 3 is correct. Lower interest rates in the US/EU make India a more attractive destination for foreign investment, leading to a large inflow of dollars. This causes the rupee to strengthen (appreciate). To prevent the rupee from appreciating too rapidly and hurting exporters, the RBI buys the excess dollars from the market.

* Statement 1 is correct. The nominal Effective Exchange Rate (NEER) is a measure of the value of a country's currency against a basket of other currencies weighted by their importance in trade. If NEER increases, it means that the value of the currency has increased relative to the currencies in the basket, indicating appreciation. * Statement 2 is incorrect. The Real Effective Exchange Rate (REER) takes into account both nominal exchange rates and relative price levels (inflation) between countries. An increase in REER means that the country's currency is overvalued relative to its trading partners, which can reduce trade competitiveness. * Statement 3 is correct. If domestic inflation is higher than inflation in other countries, the real value of the domestic currency decreases faster than the nominal value, causing a divergence between NEER and REER. Therefore, the correct statements are 1 and 3.

Statement 1 is Incorrect: Share of agriculture in GDP has actually decreased since 1991, as the service sector has grown significantly. Statement 2 is Correct: Share of India's exports in world trade has increased. India has become a more integrated part of the global economy, with a larger export footprint. Statement 3 is Correct: FDI inflows have increased considerably. The liberalisation measures made India a more attractive destination for foreign investment. Statement 4 is Correct: India's foreign exchange reserves have also increased enormously. This reflects India's improved ability to generate foreign currency and manage its external finances. Therefore, the correct answer is 2, 3, and 4 only. Hence, option B is the correct answer.

Statement 1 is correct: The Federal Reserve's monetary policy decisions, particularly regarding interest rates, can impact global capital flows. If the Fed raises interest rates, it can make US investments more attractive, potentially leading to some outflow of capital from India. This could affect demand for Indian government bonds and influence their yield. Statement 2 is correct: The RBI's monetary policy plays a crucial role in influencing Indian government bond yields. The RBI's actions like setting repo rates, open market operations, and cash reserve ratio (CRR) can affect the overall liquidity in the banking system. Higher liquidity can lead to lower yields, and vice versa. Statement 3 is correct: Inflation expectations and short-term interest rates are important factors for investors when considering the return on government bonds. Higher inflation expectations can lead investors to demand higher yields to compensate for the potential erosion of purchasing power. Similarly, short-term interest rates can act as a benchmark for bond yields. Therefore, all three factors significantly influence the yields of Indian government bonds.

* The term "West Texas Intermediate" (WTI), often seen in news reports, refers to a grade of crude oil. WTI is used as a benchmark for oil pricing in North America. * Specifically, WTI is a light, sweet crude oil, meaning it has a low density and low sulfur content. This makes it easier and more desirable to refine into gasoline and other products. WTI serves as one of the main benchmarks for oil prices globally. * West Texas Intermediate (WTI) and Brent Crude are two of the most important global benchmarks for crude oil prices. Brent Index is used as a benchmark for oil pricing globally, including Europe, Asia, and Africa.

Nationalisation: Yes, the coal sector was nationalised by the Indira Gandhi government in phases during the 1970s. Hence, Statement 1 is Correct. Coal block allocation: Coal blocks are not allocated through a lottery system. They are currently allocated through auctions, a shift from the previous system of administrative allocation. Hence, Statement 2 is Incorrect. Coal self-sufficiency: India is not entirely self-sufficient in coal production. While domestic production has increased, there is still a gap that is met through imports. Hence, Statement 3 is Incorrect.

Statements 1 and 3 are correct. Vietnam’s open economic policy of recent years integrating into global supply chains has made the growth success story possible. Vietnam's export-led growth strategy and global integration are among the key factors behind the country's remarkable achievements in growth and poverty. Vietnam was one among the few countries to post GDP growth rate figures in 2020 when the pandemic hit. Vietnam is projected to be the fastest-growing internet economy in Southeast Asia in the next 10 years. Statement 2 is not correct. Vietnam is a one-party communist state, not a multi-party parliamentary democracy. Statement 4 is correct. Thanks to an abundance of low-wage labour, Vietnam's manufacturing sector grew at a compound annual growth in the last decade. As the rest of East Asia developed and wages there rose, global manufacturers were lured by Vietnam's low labour costs and stable exchange rate. Hence, Statement 5 is not correct. According to the Asian Development Bank Report, e-services including digital financial services are at a very nascent stage in Vietnam.

Statement 1 is Incorrect: While China and Russia were not part of the TPP negotiations, it wasn't solely focused on Pacific Rim countries. Other economies like Vietnam and Singapore were part of the TPP despite not exactly being on the Pacific Rim. Statement 2 is Incorrect: The TPP was a proposed trade agreement, not a strategic alliance for maritime security. It aimed to reduce trade barriers and promote economic integration among member countries. The TPP negotiations were concluded in 2015, but the agreement was never ratified by all the signatories. The United States withdrew from the TPP in 2017, effectively ending the initiative in its original form. However, some member countries pursued alternative trade agreements based on the TPP framework. Hence, option D is the correct answer.

Foreign e-commerce companies cannot directly sell their own goods through an inventory-based model in India. This is to ensure a level playing field for domestic sellers and protect small retailers. Marketplace model allows these companies to operate as online marketplaces, providing a platform for other sellers to list and sell their products. India amended its FDI policy in e-commerce marketplaces in 2018 to classify any vendor accounting for more than 25% of the platform’s total sales as controlled by the marketplace operator. So, no seller must exceed 25 per cent of the total business on any foreign e-commerce platform. So, statement 2 is correct. Note: UPSC officially give D as correct answer but as per us the correct answer should be B

Foreign Direct Investment (FDI) typically involves a long-term interest and control in a company. However, the definition includes specific instruments and thresholds. Statement 1 and 3 are correct: Foreign Currency Convertible Bonds (FCCBs) and Global Depository Receipts (GDRs) are instruments used by Indian companies to raise capital abroad. Since these are essentially precursors to equity (convertible to shares) or represent underlying shares, they are treated as part of the FDI policy framework and statistics under the "Foreign Investment" category. Statement 2 is correct: Foreign Institutional Investment (FII)—now largely subsumed under Foreign Portfolio Investment (FPI)—is generally considered short-term. However, with certain conditions, it becomes FDI. According to international standards and the Arvind Mayaram Committee recommendations adopted by India, if an FPI holds a stake of 10% or more in a company, it is reclassified and treated as FDI. Statement 4 is incorrect: Non-Resident External (NRE) deposits are simply bank accounts held by NRIs in India. These are classified as External Debt (if repatriable) or Banking Capital, not foreign investment in a productive enterprise.

The article explicitly mentions the U.S. investigating India on 'forced labour' under Section 301 and threatening to use 'surplus capacity' in steel, textiles, etc., as non-tariff barriers. Currency manipulation is mentioned in the context of China, and high import tariffs are distinct from non-tariff barriers.

The article states, 'The reason is China’s high savings rate of above 35% of GDP... This has been able to finance its huge investments of 40% and more and peaking at 47%. This massive investment has enabled China to invest in technology development and expand its industry.' It also notes China's success without a formal trade deal with India.

The article explicitly states, 'But, caution is required since the earlier trade agreements with Japan, Korea and Australia led to a larger trade deficit with them. India could not increase its exports as much as others could because of their technological advantage.'