External Sector Flashcards
What is Fiat Money? What determines its value?
Government-issued currency not backed by a physical commodity (like gold) but by the issuing government’s stability and faith [source: 8, 9, 11]. Value derived from supply/demand relationship and government stability [source: 10].
Are US Treasury Bonds backed by hard assets? What happens if the US government defaults?
No, they are based on the faith in the government [source: 12]. If the government defaults, bondholders might not be able to exercise their claims to receive payment [source: 7, 12]. Raising the debt ceiling becomes necessary when the US govt needs to borrow more than federally authorized to pay its debts [source: 5].
Why did India impose retaliatory tariffs on US apples in 2019? What is the recent status (as of Feb 2024 context)?
India imposed tariffs in retaliation for the Trump administration revoking India’s trade benefits under the Generalised System of Preferences (GSP) [source: 15]. India dropped the 20% retaliatory tariff in late 2023/early 2024, leading to a significant increase in US apple exports to India [source: 14].
What approvals are needed for importing Genetically Modified (GM) food into India?
Prior approval from the Genetic Engineering Approval Committee (GEAC) under MoEFCC is required [source: 16]. Indian Customs also requires approval/NOC from the Food Safety and Standards Authority of India (FSSAI) under the FSS Act, 2006 [source: 17].
What was India’s approximate share in global merchandise and service exports/imports in 2018 (as per WTO data)?
Merchandise: Exports 1.7%, Imports 2.6% [source: 18]. Services: Exports 3.5%, Imports 3.2% [source: 19].
What is the Production Linked Incentive (PLI) scheme? What are its primary objectives?
An initiative by GoI to boost domestic manufacturing, promote India as a global manufacturing hub [source: 21], encourage local companies to set up/expand units [source: 20]. Objectives: Attract investment, enhance production capabilities, generate employment, promote exports [source: 22, 23].
Which country was the leading gold exporter by value in 2021?
Switzerland [source: 24], exporting $86.7B worth [source: 25].
Which country holds the largest gold reserves? Which has the second largest?
Largest: U.S. (8,133.5 tons) [source: 26]. Second largest: Germany (3,359.1 tons) [source: 26, 27].
What is the UNOPS S3i initiative? What are its focus areas?
Sustainable Investments in Infrastructure and Innovation (S3i) is a UNOPS unit engaging public/private investors to scale up infrastructure investments [source: 30, 31, 32]. Focus areas: Affordable housing, renewable energy, health infrastructure [source: 33].
What are the Rapid Financing Instrument (RFI) and Rapid Credit Facility (RCF)? Which organization provides them?
Lending facilities provided by the International Monetary Fund (IMF) [source: 34]. RFI provides rapid financial assistance to all member countries facing urgent Balance of Payments (BoP) needs, without a full program [source: 35, 36, 38]. RCF provides rapid concessional financial assistance specifically to Low-Income Countries (LICs) facing BoP crisis [source: 39, 42].
What is the Common Framework for Debt Treatment?
An initiative endorsed by G20 and Paris Club, going beyond the Debt Service Suspension Initiative (DSSI), to provide structural support to Low-Income Countries with unsustainable debt [source: 43]. Aims to ease financing constraints post-COVID-19 [source: 44].
What are Non-Fungible Tokens (NFTs)? How do they differ from cryptocurrencies?
NFTs are unique cryptographic tokens on a blockchain that cannot be replicated, representing digital items like drawings, videos, music, etc. [source: 45, 46, 47]. Unlike fungible cryptocurrencies (like Ethereum, where one token equals another), each NFT is unique and not interchangeable, so cannot be used as a medium for commercial transactions [source: 48, 49, 51, 52].
What is the ‘reserve tranche’ position with the IMF?
The component of a member country’s IMF quota held in gold or foreign currency [source: 53]. It’s an emergency account accessible anytime without service fees or conditions [source: 53, 54], considered a facility of first resort before seeking formal credit [source: 55].
What is Currency Convertibility? What is the status of the Indian Rupee’s convertibility?
The ease with which a country’s currency can be converted into gold or another currency via global exchanges [source: 63, 211]. India’s Rupee is partially convertible; allowed at market rates for current account transactions (trade, services, remittances) [source: 64, 66, 142, 213], but restrictions/approval needed for capital account transactions [source: 64, 215, 216].
What was the trend in India-Sri Lanka bilateral trade between 2000-01 and 2018-19?
Increased around 9 times overall [source: 67], but the increase was not steady, with slumps observed in some years like 2012-13 and 2016-17 [source: 69].
What are major items of textile trade between India and Bangladesh? Who was India’s largest South Asian trading partner (2016-17 data)?
Major Indian exports: cotton fibre/yarn, man-made fibres/filaments. Major imports from Bangladesh: apparel/clothing, fabric, made-up textile articles [source: India-Bangladesh Trade]. Bangladesh was India’s largest trading partner in South Asia (followed by Nepal, Sri Lanka) as per 2016-17 data [source: Bangladesh as India’s largest South Asian trading partner (as per 2016-17 data)].
What is West Texas Intermediate (WTI)?
A specific grade of crude oil, one of the three main global benchmarks (along with Brent, Dubai Crude) [source: 70]. Known as light (low density) and sweet (low sulfur content - 0.24%-0.34%) [source: 70]. Sourced mainly from inland Texas, high quality, easy to refine [source: 71].
What is the TRIMS Agreement under WTO? What does it cover?
Agreement on Trade-Related Investment Measures. Members agree not to apply investment measures related to trade in goods that restrict/distort trade [source: 72]. Prohibits measures violating GATT Article III (national treatment) and Article XI (quantitative restrictions) [source: 73, 76]. Does not apply to services [source: 74] or regulate foreign investment directly [source: 75].
Which organization publishes the Global Competitiveness Report (GCR)? What index is used?
World Economic Forum (WEF) [source: 77]. Since 2004, it ranks countries based on the Global Competitiveness Index (GCI) [source: 78].
What are the 12 main drivers (‘pillars’) of productivity assessed by the GCI 4.0 framework?
Institutions, Infrastructure, Technological readiness, Macroeconomic context, Health, Education and skills, Product market, Labour market, Financial system, Market size, Business dynamism, and Innovation [source: 80, 81].
What is External Debt?
A portion of a nation’s debt borrowed from foreign lenders like commercial banks, governments, or international financial institutions [source: 166]. Repayment is usually made in the currency used for the loan [source: 167]. Failure to repay can lead to a debt crisis [source: 168].
What is the largest component of India’s external debt according to the text? Is most owed by government or non-govt entities?
Commercial Borrowings are the largest component [source: 169]. Most of it is owed by private businesses and other non-governmental entities [source: 170].
Which currency denominates the largest portion of India’s external debt? What other currencies follow?
US dollar-denominated debt is the largest component, followed by the Indian rupee, SDR, Yen, and Euro [source: 171].
What is the mission of the Asian Infrastructure Investment Bank (AIIB)?
Financing the Infrastructure for Tomorrow (i4t) - infrastructure with sustainability, innovation, and connectivity at its core [source: 172].
How many members did AIIB have according to the text? Who is the largest shareholder?
106 members (92 Full, 14 Prospective) at the time of the document [source: 173]. China is the largest shareholder (26.61% voting share), followed by India (7.6%) [source: 174].
What is the Inter-creditor Agreement mentioned in the text aimed at?
Dealing with bad loans and speeding up the resolution of stressed assets [source: 176]. Aimed at resolving loan accounts of ₹50 crore and above under the control of multiple lenders [source: 178].
What is the General Data Protection Regulation (GDPR)?
The data protection law across all European Union countries, imposing strict rules on controlling and processing personally identifiable information [source: 179]. Requires data to be used fairly, legally, and transparently [source: 180].
Who created the ‘Ease of Doing Business index’? Name some sub-indices.
Created by economists Simeon Djankov, Michael Klein, and Caralee McLeish at the World Bank Group, with academic collaboration [source: 181]. Sub-indices include: starting a business, construction permits, getting electricity, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, resolving insolvency [source: 181].
Is the quantity of imported edible oils more than domestic production in India (based on the last five years in the text)?
Yes, the quantity imported has been more than domestic production [source: 182]. India relies on imports to meet the demand-supply gap [source: 183].
Is the import of edible oils restricted in India? What did the 2018 Budget do regarding import duty?
No, imports are under Open General License (OGL) [source: 184]. The 2018 Budget raised the import duty on refined edible oils from 20% to 35% [source: 185].
Where does India mainly import palm oil, soy oil, and sunflower oil from?
Palm oil: Indonesia and Malaysia. Soy oil: Argentina and Brazil. Sunflower oil: Russia and Ukraine [source: 186].
What is the Domestic Content Requirement (DCR) in the context of the JNNSM?
A mandate under the Jawaharlal Nehru National Solar Mission (from 2010) requiring the use of domestically manufactured solar cells and modules for solar projects set up under the mission [source: 187, 189]. Aimed to build the indigenous manufacturing base [source: 188].
What was the purpose of the National Intellectual Property Rights (IPR) Policy 2016?
To guide future IPR development, ensure strong IPR laws balancing rights owners’ interests with public interest [source: 191]. Reiterated commitment to Doha Development Agenda and TRIPS Agreement, including the Doha Declaration on TRIPS and Public Health [source: 192, 193].
Which department is the nodal agency for IPR matters in India?
Department for Promotion of Industry and Internal Trade (DPIIT) (formerly DIPP) [source: 194].
What is the National Investment and Infrastructure Fund (NIIF)?
An Indian-government-backed entity (est. 2015) to provide long-term capital to the country’s infrastructure sector [source: 195, 197]. Registered with SEBI as a Category II AIF [source: 196].
How is NIIF funded? Is it an organ of NITI Aayog?
Targeted corpus of ₹40,000 crore. Government funds 49%, remaining 51% raised from domestic/global investors (pension funds, sovereign wealth funds, etc.) [source: 199, 200]. No, it is chaired by the Ministry of Finance, not an organ of NITI Aayog [source: 198].
What impact did the 1991 economic reforms have on agriculture’s growth rate according to the text?
Reforms were not able to benefit agriculture, where the growth rate has been decelerating [source: 201].
Which sectors saw increased exports after the 1991 reforms?
Auto parts, pharmaceutical goods, engineering goods, IT software, and textiles [source: 202]. India’s share in world trade increased [source: 202]. A shift towards export-oriented cash crops occurred [source: 203].
How did Foreign Direct Investment (FDI) and foreign exchange reserves change after the 1991 reforms?
Both saw a rapid increase [source: 204]. FDI increased from ~US100 million (1990-91) to US30 billion (2017-18) [source: 205]. Forex reserves increased from ~US6 billion (1990-91) to ~US413 billion (2018-19) [source: 206].
What is ‘Import Cover’? What is considered an essential level?
The number of months of imports that could be paid for by a country’s international reserves [source: 208]. Eight to ten months of cover is considered essential for currency stability [source: 209].
What is Base Erosion and Profit Shifting (BEPS)?
An initiative by OECD seeking to close gaps in international taxation where companies avoid taxes by shifting profits (e.g., through tax inversions or migrating intangibles) to lower-tax jurisdictions [source: 211]. OECD issued 15 Action Items to address this [source: 212].
Why is Coking Coal imported by SAIL and other steel units in India according to the text?
Mainly to bridge the gap between requirement and indigenous availability and to improve quality [source: 1563]. It is used as fuel for blast furnaces and for producing metallurgical coke [source: 1565, 1566].
What was the trend for India’s coking coal imports in FY 2024-25?
Imports declined by about 9.18% year-on-year during Apr-Mar FY 2024-25, totalling approximately 58.98 million metric tonnes [source: India’s coking coal import port traffic down 9% in FY 2024-25 - SteelOrbis].
What does ‘International Liquidity’ refer to? What are its primary components?
All financial resources available to monetary authorities to meet Balance of Payments deficits (basically dollars and hard currencies) [source: 1567]. Primary component: International Reserves (gold holdings, foreign exchange assets like USD, Pound Sterling) [source: 1568]. Subsidiary resources provided by IMF [source: 1568].
Is India’s current account fully convertible?
Yes, for current transactions (trade, services like education/travel, remittances), full convertibility means the required foreign exchange is available at the official rate [source: 1570, 1641]. Operationalised on August 19, 1994 [source: 1641].
What does the Current Account in the Balance of Payments (BoP) record?
Exports and imports of goods (Balance of Trade), trade in services, and transfer payments (Balance of Invisibles) [source: 1571, 1572, 1577, 1583].
What does the Capital Account in the BoP record? What are its main components mentioned?
Records international purchases and sales of assets (money, stocks, bonds, etc.), including foreign investments and loans [source: 1578, 1581]. Components mentioned: Foreign loans, Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI) [source: 1582]. (Note: Private remittances are part of the Current Account [source: 1583]).
What are Forex Reserves? What assets do they include?
Foreign currency assets held by a country’s central bank [source: 1584]. Includes: Foreign marketable securities (Foreign Currency Assets - FCA), monetary gold, Special Drawing Rights (SDRs), and reserve tranche position in the IMF [source: 1585].
What was the approximate composition of India’s Forex Reserves around late 2024?
Total reserves ~₹54.78 lakh crore / ~$704 Bn. Composition: FCA ~₹47.32 lakh crore / ~$616 Bn; Gold ~₹5.58 lakh crore / ~$65.7 Bn; SDRs ~₹1.52 lakh crore / ~$18.5 Bn; IMF Reserve Position ~₹0.35 lakh crore / ~$4.3 Bn [source: India Forex Reserves 2025 - ClearTax, Foreign-exchange reserves of India - Wikipedia].
What factors primarily determine commodity prices according to the text?
Demand and supply are crucial market forces [source: 1587, 1588]. Supply shocks and stability in international trading countries also play a role [source: 1589]. World Bank pricing or country’s economic potential are not the determining factors mentioned [source: 1586, 1590].
How is Foreign Direct Investment (FDI) broadly defined? What can it include in India?
Investment by a business/individual into another country by acquiring business assets [source: 1592]. Includes: Subsidiaries of foreign companies, majority foreign equity holding, companies exclusively financed by foreign firms, and portfolio investment (as per the text, though usually distinguished) [source: 1593, 1594, 1595].
How can devaluing the domestic currency potentially reduce the Current Account Deficit (CAD)?
Devaluation lowers the currency’s value, making imports costlier (reducing import demand) and exports cheaper (increasing export demand) [source: 1596, 1597, 1598]. This can increase net exports and forex reserves, reducing the CAD [source: 1599].
How would reducing export subsidies affect the Current Account Deficit?
Reducing export subsidies would make exports costlier, likely causing exports to fall and thus increasing the CAD [source: 1600, 1601].
Differentiate between Foreign Direct Investment (FDI) and Foreign Institutional Investment (FII)/FPI.
FDI: Investment from outside giving investor control; long-term, targets specific sectors, brings capital & technology [source: 1603, 1604]. FII/FPI: Investment in stock/secondary markets; short-term, less stable, quick movements can cause market volatility [source: 1605, 1606].
What is a Double Taxation Avoidance Agreement (DTAA)?
A tax treaty between countries allowing taxpayers residing in one country and earning in another to avoid being taxed twice on the same income [source: 1607, 1608, 1609, 1610].
What are Special Drawing Rights (SDRs)? What is their value based on?
An international reserve asset created by the IMF to supplement members’ official reserves [source: 1613]. Value based on a basket of 5 currencies: US Dollar, Euro, Chinese Renminbi, Japanese Yen, British Pound Sterling [source: 1614]. It’s not a currency itself but a potential claim on freely usable currencies of IMF members [source: 1615, 1616].
What measures can reduce the government deficit (Fiscal Deficit) according to the text?
Increase taxes (esp. direct taxes), reduce expenditure [source: 1622], downsize bureaucracy, sell/offload shares of Public Sector Undertakings [source: 1624]. (Impact of FDI/privatisation of education on deficit reduction is uncertain per the text [source: 1625, 1626]).
Match the Stock Index with its country/exchange: Nikkei 225, Shcomp, FTSE, Nasdaq.
Nikkei 225: Japan (Tokyo Stock Exchange) [source: 1627]. Shcomp: China (Shanghai Stock Exchange) [source: 1628]. FTSE: UK [source: 1629]. Nasdaq: USA [source: 1630].
What are Participatory Notes (P-Notes / PNs)?
Instruments used by investors/hedge funds not registered with SEBI to invest in Indian securities [source: 1631]. They derive value from underlying Indian shares (derivative instruments) [source: 1632]. Issued by registered FIIs [source: 1631].
What is ‘Virtual Water’ or ‘Embedded Water’?
The volume of water required to produce a commodity or service [source: 1634]. Concept developed to understand how water-scarce countries meet needs for water-intensive goods [source: 1635].
What does ‘Full Convertibility’ of a currency mean?
Its free float with international currencies; direct exchange with any international currency [source: 1636]. Exchange rate determined by demand and supply [source: 1637]. Those with foreign exchange can convert to rupees (and vice-versa) at market rates [source: 1638].
What is the status of India’s Capital Account Convertibility? Which committee made recommendations?
India still has partial convertibility in the Capital Account [source: 1644], although it has moved towards fuller convertibility following recommendations of the S.S. Tarapore Committee (1997) [source: 1643].
Differentiate between Devaluation and Depreciation. What is the common effect on exports?
Devaluation: Fall in domestic currency value relative to foreign currency, planned by the government under a fixed exchange rate system [source: 1646]. Depreciation: Fall in domestic currency value relative to foreign currency when the exchange rate is determined by market forces (demand/supply) [source: 1647]. Both generally make exports cheaper, potentially increasing them [source: 1648].
