Aspirant Academy

Economy

Key Points at a Glance

International Trade, Balance of Payments, Foreign Aid & Investment

Paper I · Unit 2 Section 1 of 11 0 PYQs 27 min
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Key Points at a Glance

  1. India's Total Trade 2023–24

    • Merchandise exports: $437 billion; merchandise imports: $677 billion
    • Merchandise trade deficit: ~$240 billion
    • Total trade (goods + services) exceeded $1.6 trillion
    • India ranks as the 8th largest trading nation

  2. Comparative Advantage (David Ricardo, 1817)

    • A country should specialise where its opportunity cost is relatively lower
    • Applies even if another country has absolute advantage in all goods
    • Forms the theoretical basis for free trade and WTO
    • India's advantages: IT services, pharmaceuticals, textiles, gems/jewellery

  3. Balance of Payments (BoP)

    • Systematic record of all economic transactions between a country and the rest of the world
    • Current Account: trade in goods, services, income, and transfers
    • Capital & Financial Account: FDI, FII/FPI, loans, and reserve changes
    • BoP must always balance accounting-wise

  4. India's Current Account Deficit (CAD)

    • 2023–24 CAD: $23.2 billion (0.7% of GDP) — well within manageable levels
    • Sustainable threshold: ~2–3% of GDP
    • Driven by: oil imports ($232 billion) and gold imports ($45 billion)
    • Partially offset by: software services surplus ($147 billion) and remittances ($120 billion)

  5. India's Foreign Exchange Reserves

    • $648 billion (April 2025) — world's 4th largest after China, Japan, and Switzerland
    • Covers approximately 11 months of imports at current import rate
    • Well above the 3-month minimum safety threshold
    • RBI manages reserves through the Market Stabilisation Scheme (MSS)

  6. FDI vs FII/FPI Distinction

    • FDI: long-term investment with management control (≥10% equity)
    • FII/FPI: short-term investment in securities (stocks, bonds) without control
    • India received $70.9 billion FDI in 2023–24
    • FPI flows are more volatile — can reverse suddenly ("hot money")

  7. India's Key Export Commodities 2023–24

    • Petroleum products: $96B | Engineering goods: $109B | Pharma: $28B
    • Gems & jewellery: $40B | IT/software services: $227B
    • India is the world's largest supplier of generic medicines — 20% of global generic exports

  8. India's Key Import Commodities 2023–24

    • Crude petroleum: $218B | Gold: $45B | Electronic equipment: $80B | Coal: $22B
    • Trade concentration risk: top 3 imports (petroleum, electronics, gold) = 50%+ of total import bill

  9. Remittances

    • India is the world's largest remittance recipient — $120 billion in 2023–24 (World Bank)
    • Remittances exceed FDI as a source of foreign exchange
    • Top sources: USA (23%), UAE (18%), UK, Singapore, Kuwait
    • More stable than FPI or FDI — less volatile

  10. India's Trade Policy and Free Trade Agreements (FTAs)

    • Active FTAs with: ASEAN (2010), South Korea (2010), Japan (2011), UAE (2022, CEPA), Australia (2022, ECTA)
    • Negotiations ongoing with: UK, Canada, EU, GCC
    • India withdrew from RCEP in 2019 citing concerns over Chinese goods flooding

  11. EXIM Bank of India (1982)

    • Provides export credit, foreign currency loans, and project export finance
    • Supports India's foreign aid via Lines of Credit (LOC) to developing countries
    • Focus regions: Africa, South Asia, South-East Asia
    • Cumulative LOCs: $30+ billion to 63+ countries

  12. India's Export Targets and Foreign Trade Policy 2023–28

    • GoI targets $2 trillion total exports (goods + services) by 2030
    • FTP 2023–28 (launched March 31, 2023) focuses on: export to districts, RODTEP, export clusters
    • Also covers: trust-based compliance and e-commerce exports