External Sector & Capital Flows

Option A is incorrect. Foreign Direct Investment (FDI) typically involves investment in unlisted companies or companies that involve a direct ownership stake, not just investments through capital instruments in listed companies. Option B is correct. FDI is considered a non-debt creating capital flow because it involves equity investments that do not require repayment, unlike loans or debt instruments. This type of investment brings in long-term capital and management expertise, which helps in the development of industries in the host country. Option C is incorrect. FDI does not involve debt-servicing. Unlike loans or bonds, FDI involves ownership stakes, and thus, there is no obligation to pay interest or principal repayments. Option D is incorrect. The investment in Government securities by foreign institutional investors (FIIs) is considered foreign portfolio investment (FPI), not FDI. FDI focuses on acquiring a substantial ownership stake in a company, whereas FPI involves short-term investments in financial assets. Hence, option B is the correct answer.

Statement 1 is correct: The Trade-Related Investment Measures (TRIMS) agreement under the World Trade Organization (WTO) prohibits quantitative restrictions on imports by foreign investors. This means that countries cannot impose conditions like mandatory local sourcing or trade-balancing requirements that distort free trade. Statement 2 is incorrect: TRIMS only applies to trade in goods, not services. The regulation of trade in services falls under the General Agreement on Trade in Services (GATS), not TRIMS. Statement 3 is correct: TRIMS is not directly concerned with the regulation of foreign investments. Instead, it focuses on investment measures that affect trade in goods, ensuring that they do not create barriers to international trade. Hence, option C is the correct answer.

Statement 1 is correct. Merchandise trade deficit is the largest component of India's current account deficit. As per RBIs data, India's Merchandise exports during April-August 2019- 2020 were USD 133.14 billion, as compared to USD 210.39 billion of imports during the same period. Statement 2 is incorrect. Commodity-wise composition of imports between 2011-12 and 2018-19 shows that imports of iron and steel, organic chemicals, industrial machinery have registered positive growth rates as % of share in imports. Statement 3 is correct. India's net services (service exports - service imports) have been in surplus. India's Service exports during April-August 2019- 2020 were USD 67.24 billion, as compared to USD 39.25 billion of imports during the same period. Statement 4 is correct. Current Account Deficit (CAD) or trade deficit is the shortfall between exports and imports. As per Economic Survey 2019-20, India's CAD was 2.1% in 2018-19, and 1.5% of GDP in H1 of 2019-20. Therefore, the correct answer is (D) 1, 3 and 4 only. _NOTE: UPSC has not considered this question for marking._

Statement 1 is not correct. Bilateral trade between India and Sri Lanka has increased by around 9 times between 2000-01 and 2018-19. Total trade between the two countries was US$ 6.2 billion in 2018-19, out of which India's exports to Sri Lanka were US$ 4.7 billion and imports were US$ 1.5 billion. Although India has always had a trade surplus with Sri Lanka, the gap has widened since 2008-09. In 2012-13 and 2016-17, the trade slumped, thus disturbing the steady increase in the graph. Statement 2 is correct. According to the World Bank, India exports $2.25 billion worth of textile and clothing products to Bangladesh. In turn, it imports $336 million worth of textile and clothing products from Dhaka. Statement 3 is not correct. Bangladesh is India's biggest trade partner in South Asia. Bilateral trade between India and Bangladesh has grown steadily over the last decade. India's exports to Bangladesh in FY 2018-19 stood at $9.21 billion and imports during the same period were at $1.04 billion.

The external debt of India is the total debt the country owes to foreign creditors. The debtors can be the Union government, state governments, corporations, or citizens of India. The debt includes money owed to private commercial banks, foreign governments, or international financial institutions such as the International Monetary Fund (IMF) and World Bank. - Commercial borrowings continued to be the largest component of external debt with a share of 37.4 per cent, followed by NRI deposits (24.1 per cent) and short-term trade credit (19.9 per cent). - Statement 1 is incorrect: Non-Government Debt - 416.7 (US$ billion), Government Debt 104.5 (US$ billion). - Statement 2 is also incorrect: US dollar-denominated debt continued to be the largest component of India's external debt with a share of 45.9 per cent at the end of December 2018, followed by the Indian rupee (24.8 per cent), SDR (5.1 per cent), yen (4.9 per cent) and euro (3.1 per cent).

* The country's vegetable oil imports for the first six months of the oil year during November 2018 to April 2019 stood at 75,41,689 tonne, up about 3% from 73,18,295 tonne reported in the same period last year. * Vegetable oils account for the highest import in terms of value in the last five years. India relies on imports for 70 percent of its edible oil consumption.

To stop the slide of the Rupee (depreciation), the RBI/Government needs to increase the inflow of foreign currency (USD) or decrease the outflow. Option (a), (b), and (c) are likely measures: They either increase the supply of dollars in the Indian market or reduce the demand for dollars, which helps stabilize the Rupee. Option (d) is NOT a likely measure: An expansionary monetary policy usually involves lowering interest rates. When interest rates fall, the "carry trade" becomes less attractive to foreign investors, leading to capital flight. This increases the supply of Rupee in the market and decreases its value further. To stop a slide, the RBI typically follows a contractionary (dear money) policy to attract capital and curb inflation.

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.

Statement 1 is correct: Foreign currency earnings - The IT sector generates foreign exchange through exports of services. This increases the supply of foreign currency reserves, making it easier to defend the rupee's value in the foreign exchange market during times of stress. Statement 2 is incorrect: While government spending can stimulate economic growth, it can also lead to a higher budget deficit. If the deficit is financed by excessive borrowing, it can put pressure on the currency if investors lose confidence in the government's ability to repay its debts. Statement 3 is correct: Remittances from abroad - When Indians working abroad send money back home, it adds to the inflow of foreign currency. This strengthens the country's foreign exchange reserves and provides a buffer against external shocks. Therefore, the correct code is 1 and 3 only.

India overtook Thailand as the world's largest riceexporter in 2015, since then India is held its position while China is the largest producer of rice. Below are the few countries that exported the highest dollar value worth of rice in 2018.
1) India US$7.4 billion (30.1% of total rice exports)
2) Thailand $5.6 billion (22.7%)
3) Vietnam $2.2 billion (9%)