Previous Year Question
With reference to the international trade of India at present, which of the following statements is/are correct?
India’s merchandise exports are less than its merchandise imports.
India’s imports of iron and steel, chemicals, fertilisers and machinery have decreased in recent years.
India’s exports of services are more than its imports of services.
India suffers from an overall trade/current account deficit.
Select the correct answer using the code given below:
1 and 2 only
2 and 4 only
3 only
1, 3 and 4 only
Correct Answer: D
Detailed Solution
Statement 1 is correct. India’s merchandise imports exceeded its merchandise exports.
During 2019-20:
Merchandise exports were approximately USD 313.4 billion.
Merchandise imports were approximately USD 474.7 billion.
The merchandise trade deficit was approximately USD 161.3 billion.
India imported large quantities of crude oil, gold, electronic goods, machinery, chemicals and other intermediate and capital goods. Consequently, the value of merchandise imports exceeded merchandise exports.
Statement 2 is incorrect. There was no general or consistent decline in the imports of all the major commodities mentioned in the statement. During the years preceding the examination, imports of several categories such as chemicals, fertilisers and machinery had increased or fluctuated from year to year.
India continued to depend on imports of:
capital machinery and electrical equipment;
organic and inorganic chemicals;
fertiliser raw materials and finished fertilisers; and
specialised categories of iron and steel products.
A decline in the import of a particular commodity during one year cannot validate the broader claim that imports of all these commodities had “decreased in recent years”. Therefore, statement 2 is incorrect.
Statement 3 is correct. India’s services exports exceeded its services imports. Software services, business services, financial services and communication-related services generated a substantial services trade surplus.
During 2019-20:
services receipts were approximately USD 213 billion;
services payments were approximately USD 128 billion; and
the net services surplus was approximately USD 85 billion.
Exports of software and IT-enabled services, in particular, helped offset a part of India’s merchandise trade deficit.
Statement 4 is correct. The large merchandise trade deficit was not completely offset by the services surplus and private-transfer receipts. Consequently, India recorded a Current Account Deficit.
In 2018-19, the CAD was approximately USD 57.3 billion, or around 2.1% of GDP.
In 2019-20, it narrowed to approximately USD 24.6 billion, or around 0.9% of GDP.
Therefore, during the reference period, India had both a merchandise trade deficit and an overall current-account deficit.