External Sector & Capital Flows

Statement 1 is correct: This is the primary objective of the Gold Monetization Scheme (GMS). The scheme encourages individuals and institutions to deposit their idle physical gold (jewellery, coins, bars) with banks. This gold is then melted, assayed, and added to the country's gold reserves, which can be lent to jewellers, thereby bringing it into the formal economy. Statement 2 is incorrect: These schemes are focused on managing domestic gold supply and demand. They are not designed to attract Foreign Direct Investment (FDI). Policies related to FDI in the jewellery sector are separate from these schemes. Statement 3 is correct: This is a core objective of both schemes.
* The Sovereign Gold Bond (SGB) Scheme provides a financial alternative to buying physical gold. By shifting demand from physical gold to paper gold, it helps reduce the demand for gold imports.
* The Gold Monetization Scheme (GMS) increases the domestic supply of recycled gold available to jewellers, thus reducing their reliance on imported gold. Both schemes aim to curb gold imports, which are a major component of India's import bill and contribute significantly to the Current Account Deficit (CAD).

The term "import cover" refers to the number of months a country's foreign exchange reserves can finance its imports. It's a crucial indicator of a country's external trade stability and its ability to meet its import obligations.

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.

Statement 1 is Correct: The International Monetary and Financial Committee (IMFC) serves as a vital forum for discussing global economic issues and providing guidance to the International Monetary Fund (IMF). It brings together finance ministers, central bank governors, and other high-level officials from member countries to discuss challenges and opportunities facing the global economy. They also advise the IMF on its policy direction and work program. Statement 2 is Correct: The World Bank, while a separate institution, collaborates closely with the IMF. While not a formal member of the IMFC, the World Bank typically participates as an observer in IMFC meetings. This allows for better coordination and exchange of information between the two institutions on matters of mutual interest, such as global economic stability and development. Hence, option C is the correct answer.

The Regional Comprehensive Economic Partnership (RCEP) is a free trade agreement that involves the Association of Southeast Asian Nations (ASEAN) and its FTA partners — Australia, China, Japan, New Zealand, and South Korea. It aims to create a comprehensive economic partnership covering trade in goods, services, investment, intellectual property, and e-commerce. ASEAN was initially a 10-member bloc consisting of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. In 2025, Timor-Leste (East Timor) formally became the 11th member of ASEAN — marking its first expansion since Cambodia’s inclusion in 1999. In the 22nd ASEAN-India Summit (2025), both sides endorsed the ASEAN-India Plan of Action (2026–2030), focusing on areas such as maritime cooperation, digital innovation, education, and sustainable development. The year 2026 was declared the ASEAN-India Year of Maritime Cooperation. Hence, the RCEP continues to be associated with ASEAN and its FTA partners, and the correct answer remains (b) ASEAN.

The correct answer is (C) dollars and other hard currencies International Liquidity: This refers to a country's ability to meet its short-term external obligations (payments for imports, debt servicing, etc.) It essentially reflects the ease with which a country can access foreign currencies needed for international transactions. Focus on Hard Currencies: While some transactions might involve other currencies, international reserves are predominantly held in major reserve currencies like the US Dollar, Euro, Japanese Yen, and British Pound. These currencies are considered "hard" because they are stable, widely traded, and liquid (easily convertible into other currencies).

Rupee convertibility means the system where any amount of rupee can be converted into any other currency without any question asked about the purpose for which the foreign exchange is to be used. Non-convertibility can generally be defined with reference to the transaction for which foreign exchange cannot be legally purchased (e.g., import of consumer goods etc), or transactions which are controlled and approved on a case-by-case basis (like regulated imports etc).

India has sufficient reserves of iron ore, a key raw material for steel production. However, it lacks coking coal, a specific type of coal essential for the steel-making process. Saltpetre (option A) and rock phosphate (option B) are not directly used in steel production.

Balance of Trade: This refers to the net difference between a country's exports and imports of goods. It's a key component of the current account. Foreign Assets: This refers to assets held by a country's residents outside the country. It's not part of the current account but might be included in the capital account. Balance of Invisibles: This captures the net income from services, such as tourism, transportation, and royalties, as well as net current transfers (e.g., foreign aid). It's another crucial component of the current account. Special Drawing Right (SDR): This is an international reserve asset created by the International Monetary Fund (IMF). It's not directly part of the current account but might be included in the reserve assets. Therefore, only options 1 (Balance of Trade) and 3 (Balance of Invisibles) are constituents of the Current Account in the Balance of Payments.

1. Foreign Loans – These are borrowings from abroad by the government or private sector. They are capital inflows and part of the Capital Account. 2. Foreign Direct Investment (FDI) – Investment by foreign entities in domestic companies, creating a long-term interest in the economy, is part of the Capital Account. 3. Private Remittances – These are funds sent by individuals (like migrant workers) to their home country. They are part of the Current Account, not the Capital Account. 4. Portfolio Investment – Investments in stocks, bonds, and other financial assets by foreigners in the domestic market are capital inflows, part of the Capital Account.