External Sector & International Organisations: previous-year questions

Answer: (D) None of the above

A vehicle currency is one used as the go-between in foreign-exchange deals, for example converting rupees to dollars and then dollars to pesos, because direct markets between most currency pairs are thin. That role is played overwhelmingly by the US dollar, which is on one side of nearly 90% of all foreign-exchange transactions and is also the leading reserve and trade-invoicing currency. As the dollar is not listed, the answer is 'None of the above'; the euro, yen and pound rank second, third and fourth. Related terms: hard currency (stable and widely accepted), hot money (short-term speculative flows) and the IMF's SDR basket (US dollar, euro, Chinese renminbi, Japanese yen and pound sterling).

Answer: (A) Engineering goods

Answer as of 2023 — this may have changed since.

Engineering goods (machinery, iron and steel products, auto components and the like) form the largest single group in India's merchandise exports, at roughly a quarter of the total. Ready-made garments, pharmaceuticals and electronics are important but each is a much smaller share.

Answer: (C) Singapore

Answer as of 2023 — this may have changed since.

In recent years Singapore has been the largest source of FDI equity inflows into India, overtaking Mauritius, which led for many years because of its tax treaty. The USA and Japan are major sources but rank below Singapore.

Answer: (B) 1966 and 1991

The rupee was devalued in June 1966 (by about 57%) and again in July 1991 during the balance-of-payments crisis. In 1993 the rupee moved to a market-determined exchange rate, which was not a devaluation; 1965, 1968 and 1996 saw no devaluation.

Answer: (D) All of the above

The rise in reserves after 2000–01 came from several reinforcing causes: continued reforms attracting FDI, higher Indian interest rates drawing debt inflows and NRI deposits, and a booming stock market attracting FII investment. Each listed factor contributed, so 'All of the above' is correct.

Answer: (C) United States

Answer as of 2023 — this may have changed since.

In 2022–23 the United States overtook China to become India's largest trading partner, with bilateral trade of about 128 billion US dollars. Japan, Bangladesh and South Korea are significant partners but far smaller; China, the usual rival for the top spot, is not among the options.

Answer: (A) Current Account

The rupee has been fully convertible on the current account since August 1994, when India accepted IMF Article VIII obligations. Capital account convertibility is still only partial, and 'trade account' is not a separate convertibility category.

Answer: (A) Directorate General of Foreign Trade (DGFT)

The Directorate General of Foreign Trade, under the Ministry of Commerce and Industry, formulates and implements the Foreign Trade Policy. The Home Ministry, NITI Aayog and Finance Commission have no such role.

Answer: (C) Gems and Jewellery

Gems and jewellery (cut and polished diamonds, gold jewellery) is one of India's largest manufactured export items. Tea is a primary (plantation) product, and India is a net importer of textile machinery.

Answer: (A) Petroleum Crude

Answer as of 2023 — this may have changed since.

Crude petroleum is India's largest import item by value, accounting for roughly a fifth to a quarter of total imports. Gold is usually second, and organic chemicals and computer hardware are much smaller.

Answer: (C) Sri Lanka

Answer as of 2023 — this may have changed since.

After the RBI allowed international trade settlement in rupees in July 2022, Sri Lanka was among the first countries to open Special Rupee Vostro Accounts and agree to trade in the Indian rupee. The USA, Pakistan and Canada had no such arrangement.

Answer: (A) Computer Software and Hardware

Answer as of 2023 — this may have changed since.

In recent years the computer software and hardware sector has received the largest share of FDI equity inflows into India, alongside the broad services sector. Chemicals, tourism and agriculture receive much smaller shares.

Answer: (A) South-East Asia

Answer as of 2023 — this may have changed since.

A large share of India's outward direct investment goes to South-East Asia, especially Singapore, which is a major hub for Indian companies' overseas operations. South Asia receives relatively little, and Europe and the USA, though important, are not the main destination in the keyed view.

Answer: (D) Petroleum, oil and lubricants

Answer as of 2023 — this may have changed since.

Petroleum, oil and lubricants (POL), mainly crude oil, is India's largest import item, making up roughly a quarter or more of the import bill, because India imports over 85% of its crude requirement and is the world's third-largest oil consumer and importer. Electronic goods, gold, machinery (capital goods), coal and chemicals follow. Since 2022–23 Russia has been the largest crude supplier, ahead of Iraq, Saudi Arabia and the UAE. On the export side, the leading items are engineering goods, petroleum products, and gems and jewellery.

Answer: (B) 1, 2 and 4

The capital account of the Balance of Payments records transactions that change a country's foreign assets and liabilities: foreign investment (both FDI and portfolio investment), loans (external assistance and commercial borrowings) and banking capital such as NRI deposits. Remittances from abroad are private transfers and belong to the current account, under "invisibles", along with trade in services and investment income. So items 1, 2 and 4 are correct and 3 is not. India is the world's largest recipient of remittances; the rupee is fully convertible on the current account (since 1994) but only partially on the capital account.

Answer: (B) GATT

The World Trade Organization began on 1 January 1995 under the Marrakesh Agreement, at the end of the Uruguay Round, replacing the General Agreement on Tariffs and Trade (GATT, signed 1947, in force 1948). WTO has its headquarters in Geneva and India is a founder member. The others are separate bodies: UNCTAD (1964, Geneva) for trade and development, UNIDO (1966, Vienna) for industrial development, and OECD (1961, Paris), the club of mostly developed economies.

Answer: (B) Falta

The Falta Export Processing Zone in South 24 Parganas, on the Hooghly about 55 km from Kolkata, was set up in 1984 as one of India's early EPZs and was converted into the Falta Special Economic Zone in 2003 (SEZ policy of 2000; SEZ Act, 2005). Haldia is a port and petrochemical centre, Kakdwip a fishing harbour, and Raichak a riverside tourist spot. India's - and Asia's - first EPZ was Kandla (1965), followed by SEEPZ at Santacruz, Mumbai (1973); Falta, Noida, Chennai and Cochin came in 1984 and Visakhapatnam in 1989.

Answer: (D) Petrolium crudes

Answer as of 2021 — this may have changed since.

Crude petroleum is by far India's largest import item, about one-fifth to one-quarter of the total import bill, since India imports over 85% of its crude requirement - in 2021 mainly from Iraq, Saudi Arabia and the UAE, with Russia becoming the largest supplier after 2022. Gold is usually among the top items after crude, along with electronic goods, coal and machinery; platinum is minor. Refined petroleum products, by contrast, are among India's top exports, thanks to large refineries such as Jamnagar. Rankings change every year, so check the latest Economic Survey.

Answer: (A) Exports Cheaper and Imports Costlier

A weaker rupee makes Indian goods cheaper for foreign buyers (boosting exports) while making imported goods costlier in rupee terms.

Answer: (D) All of the above

RCEP, though technically ASEAN-centred, was widely seen as a China-anchored trade bloc (statement 1) and often framed geopolitically as a counterweight to the US-backed Trans-Pacific Partnership (statement 2); expanding market access for India's services sector and professionals was also a key argument made in favour of India's participation (statement 3) — all three characterisations were part of the public debate at the time, though India ultimately opted out of RCEP in November 2019.