Question 16 from UPSC CSE 2020 - ECONOMICS

Question

With reference to the international trade of India at present, which of the following statements is/are correct?
1. India's merchandise exports are less than its merchandise imports.
2. India's imports of iron and steel, chemicals, fertilizers, and machinery have decreased in recent years.
3. India's exports of services are more than its imports of services.
4. India suffers from an overall trade/current account deficit.
Select the correct answer using the code given below:

Accepted Answer

Correct Option: D. 1, 3, and 4 only

Strategy: To evaluate the provided statements on India's trade, the strategy involves:

*   Acknowledging India's traditional merchandise trade deficit (exports are less than imports).
*   Assessing recent import trends, recognizing that key items like iron, steel, chemicals, and machinery often see increased or stable demand.
*   Identifying India's strength in service exports, particularly IT and business services, which generally exceed service imports.
*   Confirming the macroeconomic reality of India's overall current account/trade deficit.
*   Using these economic indicators to validate or invalidate each statement.

Key Info: ## India's International Trade Overview

India's international trade encompasses both goods (merchandise) and services.

### Merchandise Trade
Historically, India experiences a persistent merchandise trade deficit, where imports consistently outstrip exports.

*   **Exports:** Include textiles, gems and jewelry, petroleum products, and engineering goods.
*   **Imports:** Dominated by crude oil, gold, electronics, and machinery.
*   **Import Growth:** Items such as iron and steel, chemicals, fertilizers, and machinery typically see steady or increasing growth due to domestic industrial and infrastructure demands.

### Services Trade
Services trade is a significant positive contributor to India's external sector, consistently generating a surplus.

*   **Service Exports:** Notably strong in IT, business process outsourcing, financial, and consulting services, generally exceeding service imports.

### Current Account Deficit (CAD)
India's current account, which includes goods, services, and income flows, is usually in deficit. This is primarily due to the merchandise trade gap, partially offset by remittances and the service trade surplus.

*   **Reporting:** The CAD as a percentage of GDP is published annually in the Economic Survey and by the Reserve Bank of India (RBI).

### Key Data Sources
Major agencies monitoring and reporting India's trade data include:

*   Ministry of Commerce and Industry
*   Directorate General of Foreign Trade (DGFT)
*   Reserve Bank of India (RBI)
*   The Economic Survey

The merchandise trade deficit remains a key policy concern for macroeconomic stability, prompting ongoing efforts in export promotion and import substitution.

Answer

Option A: 1 and 2 only

Answer

Option B: 2 and 4 only

Answer

Option C: 3 only