Current Account and Capital Account is part of External Sector of Economy. Below are notes on 54 sub-topics, followed by practice MCQs from State PSC and UPSC papers.
External Sector
Records all economic transactions between residents of a country and the rest of the world. Comprises Current Account and Capital Account.
- Current Account Records transactions in goods, services, income, and transfers.
Visibles (Merchandise Trade)
Export and import of physical goods.
Invisibles
Services, Income, and Transfers.
Services
Trade in intangible services.
- Examples: Travel, transportation, insurance, software (IT) services, financial services, communication services.
- Export Promotion Measures like subsidies, tax incentives, export credits, market development, and diversification of the export base to boost exports.
Invisible Export
Refers to the export of Services. (Answers MCQ 1 & 2)
Investment Income
Earnings from foreign investments (e.g., interest on loans, dividends on shares, profits from FDI).
Compensation of Employees
Wages and salaries earned by residents working abroad or paid to non-residents working domestically.
- Transfers One-way transactions without an economic quid pro quo.
Private Transfers
Largely remittances sent by non-resident citizens (e.g., NRIs) to their home country.
Official Transfers
Grants, aid, and donations between governments or international organizations.
India's External Financing
Remittances from abroad (private transfers) are a significant, often the largest, source of external financing for India's Current Account. (Answers MCQ 3)
Capital Account
Records cross-border capital flows related to assets and liabilities (e.g., Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI), external commercial borrowings, external assistance, banking capital).
Balance of Trade (Merchandise Account)
- A Letter of Credit (LC) is a payment mechanism in international trade where a bank (typically the importer's bank) guarantees payment to the exporter once the exporter presents specified documents, proving shipment and compliance with terms.
- The Letter of Credit offers the exporter the best assurance of being paid for products sold internationally because the bank assumes the payment obligation if the importer defaults.
- A Letter of Credit is produced/issued by an importer's bank on behalf of the importer.
- Other international trade payment methods include:
- Open Account: Exporter ships goods and documents directly to the importer before payment is due, relying solely on the importer's promise to pay. This offers the least security for the exporter.
- Drafts (Bills of Exchange): A written order by the exporter (drawer) instructing the importer (drawee) to pay a specific sum to a third party (payee) on demand or at a future date. Offers more security than open account but less than an LC.
- A Bill of Lading is a document issued by a carrier to acknowledge receipt of cargo for shipment. It serves as: A contract of carriage. 1. A receipt for goods. 2. A document of title to the goods. 3. It is a crucial shipping document often required for payment under a Letter of Credit, but it is not a payment method itself.
Capital Account Convertibility (CAC)
Freedom to convert domestic financial assets into foreign financial assets and vice versa at market-determined exchange rates. Applies to capital account transactions (e.g., investments, loans, external commercial borrowings, FDI, FII).
- India has full
Current Account Convertibility since 1994; full CAC is not yet implemented.
- Stages of CAC Typically a gradual process, often involving phased liberalization, usually starting with capital inflows then outflows.
Tarapore Committee I (1997)
Recommended a roadmap for full CAC. Identified three preconditions:
- Fiscal consolidation (reduction in fiscal deficit).
- Strengthening of the financial system (e.g., NPA reduction, capital adequacy).
- Low inflation rate with a strong exchange rate policy.
Tarapore Committee II (2006)
Re-examined the roadmap for full CAC. Reiterated and added preconditions, including:
- Central Government fiscal deficit reduction (target 3.5% of GDP).
- Inflation target (4-4.5%).
- Adequate Forex reserves (cover 6 months of imports).
- Strengthening banking sector (CRAR 12%).
- Interest rate deregulation.
Foreign Exchange Regulation Act (FERA), 1973
A highly restrictive law enacted to conserve foreign exchange due to scarcity. It regulated *all* foreign exchange transactions broadly and treated violations as criminal offenses.
It was not mainly for external debt liability.
- Foreign Exchange Management Act (FEMA), 1999 Replaced FERA, effective from June 1, 2000. Adopted a more liberal approach, facilitating external trade & payments and promoting the orderly development of India's foreign exchange market. Treated forex violations as civil offenses.
Capital Account: Definition and Components
- Capital Account records all international transactions that change a country's assets or liabilities, thus creating future claims or obligations.
- It reflects the cross-border movement of capital, impacting a nation's net foreign assets/liabilities.
Foreign Direct Investment (FDI)
Investment involving a lasting interest and control by a foreign entity in a resident enterprise (e.g., setting up a factory, acquiring a significant equity stake).
Foreign Portfolio Investment (FPI)
Investment in a country's financial assets without gaining control, including shares, bonds, government securities, and sovereign bonds issued by the country.
External Commercial Borrowings (ECB)
Loans from foreign entities (commercial banks, institutional investors, foreign governments) to resident corporates and banks.
External Assistance
Loans from foreign governments and international financial institutions (e.g., World Bank, IMF) to the government or approved entities.
- Includes all forms of foreign loans (short-term & long-term).
3. Banking Capital
- Non-Resident
Indian
(NRI)
Deposits Deposits by NRIs in Indian banks (e.g., NRE, FCNR, NRO accounts).
- Includes other banking sector transactions creating assets/liabilities with non-residents.
Invisibles
This category includes Services (e.g., shipping, tourism, software), Investment Income (e.g., interest, dividends, profits on investments), and Transfers.
Private Transfers/Remittances
Money sent by individuals abroad to residents (e.g., remittances from NRIs to families).
Investment Income
Income earned from existing investments abroad or paid to foreign investors (e.g., interest on foreign loans, dividends on foreign portfolio investments).
Current Account Deficit (CAD): Causes, Implications, and Financing
- Current Account Deficit (CAD) occurs when a country's total current account payments (imports of goods & services, income payments, and current transfers) exceed its total current account receipts (exports of goods & services, income receipts, and current transfers).
- Components of Current Account: Trade Balance (goods exports-imports), Services Balance (services exports-imports), Net Income (income received-paid on investments), and Net Current Transfers (remittances, grants).
- CAD is primarily driven by a trade deficit, i.e., imports of goods & services exceeding exports of goods & services.
Causes of CAD
- Increased domestic demand for imports (e.g., due to economic growth).
- High global commodity prices (e.g., crude oil, gold), increasing import bill.
- Reduced customs duties on imports (e.g., gold), making them cheaper and increasing volume.
- Weak global demand or lack of competitiveness for domestic exports.
- Government policies that restrict exports (e.g., ban on onion exports), reducing export earnings.
- Appreciation of domestic currency (making imports cheaper and exports costlier).
Implications of CAD
- Depreciation of domestic currency.
- Increased foreign debt burden.
- Depletion of foreign exchange reserves.
- Potential for reduced investor confidence.
- Higher interest rates to attract capital inflows.
Financing of CAD
- Foreign Direct Investment (FDI).
- Foreign Portfolio Investment (FPI).
- External Commercial Borrowings (ECBs).
- Non-Resident Indian (NRI) deposits.
- Drawing down foreign exchange reserves.
- CAD is reflected in the Balance of Payments (BoP) as the Current Account component. The Capital Account must run a surplus to finance the CAD for overall BoP balance.
Current Account Surplus (CAS): Implications and Sustainability
- Current Account Surplus (CAS) occurs when total receipts (exports of goods & services, remittances, income from abroad) exceed total payments (imports of goods & services, transfers, income paid abroad).
- India experienced a continuous Current Account Surplus (CAS) during the
2001-04 period.
- India recorded a Current Account Surplus
Q4:2023-24.
- The primary reason for the CAS in Q4:2023-24 was a surge in services exports.
- Other contributing factors to the Q4:2023-24 CAS included a lower merchandise trade deficit and higher private transfer receipts (remittances).
- Implications of CAS Accumulation of foreign exchange reserves, reduced external debt, potential for currency appreciation.
- Persistent large CAS can lead to currency appreciation, potentially harming export competitiveness and economic growth if domestic absorption remains low.
- Sustainability of CAS depends on underlying structural factors such as competitiveness of domestic industries (services, manufacturing), global demand, and the domestic savings-investment balance.
Current Account: Definition and Components
- Current Account (CA) records all receipts and payments that do not create future claims or liabilities.
- It represents the net flow of a country's income/expenditure from international transactions over a period.
1. Balance of Trade (Visible Account / Merchandise Account)
- Net value of merchandise (goods) exports (+) and imports (-).
a) Services
Exports (+) and Imports (-) of non-factor services (e.g., shipping, tourism, banking, software).
b) Income
Net investment income (e.g., interest, dividends, profits) and compensation of employees received from abroad (+) or paid abroad (-).
- c) Transfers (Unrequited
Transfers) Net receipts (+) or payments (-) that do not have a quid pro quo (e.g., remittances, gifts, grants, external assistance without repayment obligation).
Functional Classification (India)
Current Account is classified into Merchandise (goods) and Invisibles (services, income, transfers).
Indian Rupee Convertibility
- Indian Rupee is fully convertible on Current Account.
- Formal full convertibility was achieved in August 1994 by accepting IMF Article VIII obligations.
- Significant steps towards current account convertibility, including a unified exchange rate system, were initiated earlier, around March 1994.
- It is not fully convertible on Capital Account (partial convertibility exists).
- It is not convertible into gold.
Items NOT included in Current Account (typically Capital Account items)
Foreign Direct Investment (FDI), Foreign Institutional Investment (FII), External Commercial Borrowings (ECBs), External Assistance (loans), Special Drawing Rights (SDRs), Foreign assets, Net non-resident deposits.
Policy Measures to Manage Current Account and Capital Account Balances
- Current Account Management Measures:
Export Promotion
Incentives, subsidies, market access agreements.
Import Management
Tariffs, quotas, import substitution, non-tariff barriers.
Exchange Rate Policy
Depreciation to boost exports, curb imports.
Promoting Invisible Receipts
Tourism, remittances, IT services.
India-UAE (Feb 2024)
Signed agreement on inter-linking domestic debit/credit cards (e.g., RuPayJCB linkage) to facilitate cross-border transactions, impacting invisible trade.
- Capital Account Management Measures:
FDI Policy
Liberalization, higher caps, ease of doing business.
Bilateral Investment Treaties (BITs)
Legal protection & promotion of FDI between signatory nations.
FPI/FII Regulation
Setting limits, investment routes, taxation on portfolio flows.
External Commercial Borrowings (ECBs)
Regulations on limits, end-use, and approval processes.
Outward Investments
Liberalization for domestic firms to invest abroad.
India-UAE (Feb 2024)
- Signed MoU on cooperation in digital infrastructure projects, encouraging investment inflows.
- Agreed to facilitate an early conclusion of a Bilateral Investment Treaty (BIT) to boost FDI. (Note: Official reports indicate agreement to facilitate *early conclusion*, not necessarily *signing in the next ministerial meeting*.)
3. Trade Balance and Trade Deficit/Surplus
Practice MCQs: Current Account and Capital Account
Balance of Invisibles (Services, Income, Transfers)
Invisible Export means export of—
Asked in: D. Sustained leverage funds for Micro Finance · preliminary paper tcs tps 2020
- Services
- Prohibited goods
- Unrecorded goods
- Goods through smuggling
Show answer
Answer: A. Services
Ans: A The Reserve Bank of India (RBI) introduced the Special Liquidity Facility (SLF) for Mutual Funds (MF) in April 2020. This scheme was designed to provide on-tap liquidity to mutual funds facing liquidity stress, particularly during the COVID-19 pandemic, by offering funds to banks against their holdings of corporate bonds.
Balance of Trade (Merchandise Account)
The payment method often used in international trade which offers the exporter the best assurance of being paid for the products sold internationally is __________.
Asked in: KPSC KAS Prelims 2017
- Open Account
- Drafts
- Bill of Lading
- Letter of Credit
Show answer
Answer: D. Letter of Credit
A Letter of Credit transfers the payment risk from the buyer to a bank, provided the exporter meets the terms and conditions stipulated in the LC. This significantly reduces the risk of non-payment for the exporter, especially in international trade where parties may be unfamiliar with each other.
A "Letter of Credit" is produced by
Asked in: UPPSC Upper Mains 2009
- an exporter
- an importer
- both by exporter and importer
- shipping company
Show answer
Answer: B. an importer
- The importer is the party who needs to provide assurance of payment to the exporter. - The importer's bank (the issuing bank) issues the Letter of Credit. - The Letter of Credit is sent to the exporter, usually via an advising bank in the exporter's country. - The exporter receives payment from the bank once they present documents proving that the goods have been shipped as agreed.
Capital Account Convertibility (CAC): Concept, Stages, and Tarapore Committee Reports
Consider the following statements : (1) FEMA came into effect from June 1, 2000. (2) FERA is mainly for external debt liability. Select the correct code with respect to the above statements :
Asked in: ukpsc 2025 2025
- Statements (1) and (2) are correct and state‐ ment (2) explains statement (1).
- Statements (1) and (2) are correct and state‐ ment (2) does not explain statement (1).
- Statement (1) is true, but statement (2) is false.
- Statement (1) is false, but statement (2) is true.
Show answer
Answer: C. Statement (1) is true, but statement (2) is false.
This question differentiates between the Foreign Exchange Regulation Act (FERA) and the Foreign Exchange Management Act (FEMA), their effective dates, and their primary objectives. It highlights the transition from a restrictive regime to a more liberalized one in managing foreign exchange.
Capital Account: Definition and Components
Which of the following is not included in the Capital Account of the Balance of Payments of a country ?
Asked in: UPSC CDS 2 2024
- Foreign Direct Investment
- Commercial Borrowing
- Invisibles
- External Assistance
Show answer
Answer: C. Invisibles
The Balance of Payments (BoP) is a summary of all economic transactions between a country and the rest of the world over a period of time. It is divided into two main accounts: the Current Account and the Capital Account (sometimes including a Financial Account). - The Current Account records trade in goods (visibles), services (invisibles), income (investment income, compensation of employees), and current transfers (remittances, grants). "Invisibles" refers to services, income, and current transfers. - The Capital Account (or Capital and Financial Account combined) records capital transfers and transactions involving financial assets and liabilities. This includes Foreign Direct Investment (FDI), Foreign Portfolio Investment (FPI), loans (commercial borrowing, external assistance), and banking capital.
According to Reserve Bank of India, which of the following is/are a part of Capital Account? 1. External commercial borrowings (ECB) 2. Foreign Direct Investment 3. Foreign portfolio investment 4. Importing invisible goods and services.
Asked in: GPSC Prelims CSP 2 2021
- 1, 2 and 4 only
- 2 only
- 1, 2 and 3 only
- 1, 2, 3 and 4
Show answer
Answer: C. 1, 2 and 3 only
According to the Reserve Bank of India (RBI) framework for Balance of Payments, the Capital Account records capital transfers and financial transactions. 1. External Commercial Borrowings (ECBs) are loans raised by Indian entities from non- resident lenders, classified under external debt, and are part of the Capital Account (specifically Financial Account). 2. Foreign Direct Investment (FDI) involves long-term investment by a foreign entity in an Indian entity, giving the foreign entity significant influence. This is a financial transaction and part of the Capital Account. 3. Foreign Portfolio Investment (FPI) involves investment in Indian securities (like stocks and bonds) without seeking control. This is also a financial transaction and part of the Capital Account. 4. Importing invisible goods and services refers to acquiring services (like shipping, banking, software services) or making payments like remittances, which are recorded in the Current Account (specifically the 'Invisibles' component).
Which of the following is/are a part of Capital Account of Balance of Payments ? 1. Portfolio Investment 2. External Assistance 3. NRI Deposits Choose the correct answer from the following :
Asked in: PPSC CS Prelims 2013
- 1 and 2
- 1, 2 and 3
- Only 1
- Only 3
Show answer
Answer: B. 1, 2 and 3
The Capital Account of the Balance of Payments records all transactions between residents of a country and non-residents that involve the transfer of ownership of capital assets. This includes: 1. Portfolio Investment Refers to investment in financial assets such as shares, bonds, and other securities of a foreign country, where the investor does not gain control over the foreign enterprise. 2. External Assistance Includes loans and grants received from foreign governments and international institutions. Loans are capital flows. 3. NRI Deposits Deposits made by Non-Resident Indians in domestic banks are considered capital inflows from non-residents into the domestic banking system.
Capital Account of Balance of Payments can include
Asked in: PPSC CS Prelims 2015
- Loans
- Banking capital
- Foreign investment
- All of the above
Show answer
Answer: D. All of the above
The Balance of Payments (BoP) primarily consists of the Current Account and the Capital Account, which together reflect all economic transactions between a country and the rest of the world.
Which of the following constitute Capital Account? 1. Foreign Loans 2. Foreign Direct Investment 3. Private Remittances 4. Portfolio Investment Select the correct answer using the codes given below.
Asked in: UPSC IAS 2013
- 1, 2 and 3
- 1, 2 and 4
- 2, 3 and 4
- 1, 3 and 4
Show answer
Answer: B. 1, 2 and 4
The Balance of Payments (BoP) summarizes all economic transactions between residents of a country and the rest of the world over a period. It consists of the Current Account and the Capital Account. The Capital Account deals with cross- border investment flows and changes in assets/liabilities.
Which of the following constitutes a capital account in the Balance of Payments in India? 1. Foreign loans 2. Foreign Direct Investments 3. Remittances from abroad 4. Portfolio investment
Asked in: WBPSC CS Prelims 2023
- 1, 2 and 3
- 1, 2 and 4
- 2, 3 and 4
- 1, 2, 3 and 4
Show answer
Answer: B. 1, 2 and 4
- Capital Account deals with financial assets and liabilities (investments, loans). - Current Account deals with goods, services, income, and current transfers. - Remittances are part of the Current Account.
Which one of the following items is included in the capital account of the balance of payments?
Asked in: WBCS Main Paper 5 2022
- Invisibles
- Investment income
- Commercial borrowings
- Private transfers
Show answer
Answer: C. Commercial borrowings
The Balance of Payments (BoP) account records all economic transactions between residents of a country and the rest of the world during a specific period. It consists of two main parts: the Current Account and the Capital Account. Commercial borrowings, which represent loans taken from foreign entities or markets, are classified under the Capital Account as they involve the movement of capital.
Which financial service company has launched the ConQR-QR code embedded credit card, along with BOB Financial?
Asked in: Sub Inspector 2021
- Maestro card
- Mastercard
- Net banking
- Google pay
Show answer
Answer: B. Mastercard
The ConQR card allows users to make payments by scanning a QR code embedded on the card itself, offering a contactless payment experience.
Which of the following are considered under India’s ‘Capital Account’ in the Balance of Payments? - FDI inflow - External commercial borrowings - Remittances from NRI - Sovereign bonds issued by India Choose the correct option from the codes given below.
Asked in: GS Asst Architect PWD 02 2025
- (i) and (iii) are correct
- (i), (ii) and (iv) are correct
- (ii) and (iv) are correct
- (i), (ii) and (iii) are correct
Show answer
Answer: B. (i), (ii) and (iv) are correct
The Balance of Payments (BOP) has two main accounts: the Current Account and the Capital Account. The Capital Account records all international trade in financial assets and provides information about the demand for and supply of foreign exchange.
Current Account Deficit (CAD): Causes, Implications, and Financing
What is Current Account Deficit (CAD) ?
Asked in: CGPSC Prelims Exam 2017
- Excess amount drawn over the total deposit amount in Current Accounts of the Banks
- Deficit due to excess of Govt. expenditure over Govt. Revenue in current year
- Deficit caused due to excess of total imports over total exports during the year
- Loss due to highest cost of production over market price of the commodity
Show answer
Answer: C. Deficit caused due to excess of total imports over total exports during the year
The Current Account records a nation's transactions with the rest of the world in goods, services, income (interest, dividends, etc.), and transfers (remittances, grants). A Current Account Deficit occurs when the total value of imports of goods and services, plus income paid to foreign investors and transfers made abroad, exceeds the total value of exports of goods and services, plus income received from abroad and transfers received from abroad. Option A describes a banking term (overdraft/ drawing limit on a current account). Option B describes a government's fiscal position (Fiscal Deficit). Option C describes the most significant component of the Current Account for many countries, including India: the trade balance. While CAD includes services, income, and transfers, an excess of total imports over total exports (trade deficit) is the primary driver of CAD in India. This option captures the essence of a deficit in the balance of trade, which is a major part of the current account. Option D describes a microeconomic concept related to a firm's profitability. Therefore, Option C is the closest and most relevant description of a Current Account Deficit among the choices provided, focusing on the dominant trade component.
Which of the following are most likely to cause current account deficit in India? 1. Reduced excise duties on sports utility vehicles. 2. Reduced customs duties on gold. 3. Ban on exports of onions.
Asked in: GPSC Prelims CSP 2 2022
- 1 and 2 only
- 2 and 3 only
- 1 and 3 only
- None of the above
Show answer
Answer: B. 2 and 3 only
- Current Account Deficit (CAD) is caused when the value of imports (goods, services, transfers) is greater than the value of exports (goods, services, transfers). - Policies that increase imports or decrease exports tend to worsen CAD. - Policies that decrease imports or increase exports tend to improve CAD.
Given below are two statements, one labelled as Assertion (A) and the other as Reason (R): Assertion (A): When the payments made by a country exceeds its receipts from trade of goods, services, transfer and net income is called Current Account Deficit (CAD). Reason (R): Current Account Deficit (CAD) occurs when a country exports more goods, services and capital. Choose the correct answer from the codes given below: Codes : (a) Both A and R are true and R is the correct explanation of A. (b) Both A and R are true and R is not the correct explanation of A. (c) A is true but R is false (d) A is false but R is true
Asked in: RO ARO 2020
- Both A and R are true and R is the correct explanation of A.
- Both A and R are true and R is not the correct explanation of A.
- A is true but R is false
- A is false but R is true
Show answer
Answer: C. A is true but R is false
Understanding the components and implications of Current Account Deficit (CAD) is fundamental to economics, particularly in international trade and balance of payments.
Current Account Surplus (CAS): Implications and Sustainability
During which period did India have continuous current account surplus ?
Asked in: APSC CCE Prelims Exam 2018
- 1990-93
- 2001-04
- 2005-08
- 2009-12
Show answer
Answer: B. 2001-04
Specifically, India's current account balance recorded a surplus for three consecutive financial years: 2001-02, 2002-03, and 2003-04.
What was the primary reason for the current account surplus in Q4:2023-24 ?
Asked in: APPSC Group II Mains paper 2 2025
- Increase in merchandise exports
- Surge in services exports
- Decrease in imports
- Higher remittances
Show answer
Answer: B. Surge in services exports
India's current account balance is significantly influenced by the merchandise trade deficit, which is often offset by the surplus in services trade and remittances. In Q4 2023-24, strong performance in services exports was a key factor in achieving a surplus.
Current Account: Definition and Components
Current Account under Balance of Payments includes _________. 1. Exports 2. Imports 3. External assistance 4. Foreign investment
Asked in: GPSC Prelims CSP 2 2021
- 1, 2 and 3 only
- 1 and 2 only
- 2, 3 and 4 only
- 1, 2, 3 and 4
Show answer
Answer: A. 1, 2 and 3 only
The Current Account tracks the flow of goods, services, income, and transfers between a country and the rest of the world over a period.
The current account of the balance of payments comprises the
Asked in: KPSC KAS Prelims 2014
- balance of trade only
- net investment incomes and net transfers
- balance of trade, net investment incomes and net transfers
- net transfers and balance of trade
Show answer
Answer: C. balance of trade, net investment incomes and net transfers
The current account records a country's transactions with the rest of the world involving goods, services, income, and current transfers. - Balance of Trade: Exports minus imports of goods. - Balance of Services: Exports minus imports of services. - Net Investment Income (Primary Income): Income received from abroad minus income paid abroad (e.g., interest, dividends, wages). - Net Transfers (Secondary Income): One-way transfers like remittances, grants, aid. Option C lists the balance of trade (goods), net investment incomes, and net transfers, covering three of the four main categories, omitting only the balance of services.
The Current Account on the Balance of Payments in India is functionally classified into which two categories ?
Asked in: KPSC KAS Prelims 2015
- Merchandise and Invisibles
- Loans and Amortisation
- Foreign Investments and Foreign Currency Deposits
- None of the above
Show answer
Answer: A. Merchandise and Invisibles
The Balance of Payments (BoP) is a statement of all transactions made between entities in one country and the rest of the world over a specified period, typically a year. It is divided into the Current Account, Capital Account, and Financial Account (in modern classifications, Capital and Financial accounts are sometimes grouped or detailed differently).
The Indian rupee was made convertible into which of the following accounts since March 1994 ?
Asked in: UKPSC CS Prelims 2012
- Capital Account
- Current Account
- Both (a) and (b)
- Revenue Account
Show answer
Answer: B. Current Account
Current Account convertibility means that residents and non-residents are allowed to freely buy and sell foreign exchange for transactions related to trade in goods and services, interest payments, remittances, etc.
Which of the following statements is correct with respect to the convertibility of Indian rupee?
Asked in: UPSC CAPF 2013
- It is convertible on capital account
- It is convertible on current account
- It is convertible both on current and capital ac‐ count
- None of the above
Show answer
Answer: B. It is convertible on current account
- Convertibility of a currency refers to the freedom with which it can be exchanged for other currencies. - Convertibility is typically discussed in two parts: current account convertibility and capital account convertibility. - Current account convertibility allows individuals and businesses to freely convert domestic currency into foreign currency for current account transactions, which include trade in goods and services (exports and imports), remittances, interest payments, and dividends. The Indian Rupee is fully convertible on the current account. - Capital account convertibility allows individuals and businesses to freely convert domestic currency into foreign currency for capital account transactions, which involve cross-border movement of capital, such as investments (FDI, FPI), loans, and acquisition of assets. The Indian Rupee is not fully convertible on the capital account; there are restrictions and regulations imposed by the RBI on various capital transactions. India has moved towards greater capital account convertibility but has not achieved full convertibility due to concerns about potential financial instability.
With reference to Balance of Payments, which of the following constitutes/constitute the Current Account? 1. Balance of trade 2. Foreign assets 3. Balance of invisibles 4. Special Drawing Rights Select the correct answer using the code given below.
Asked in: UPSC IAS 2014
- 1 only
- 2 and 3
- 1 and 3
- 1, 2 and 4
Show answer
Answer: C. 1 and 3
The Balance of Payments (BoP) is a statement of all transactions made between entities in one country and the rest of the world over a specific period. It is divided into two main accounts: the Current Account and the Capital Account. The Current Account records transactions in goods, services, income (like remittances, interest, dividends), and current transfers (like gifts, grants).
Which one of the following items is not included in the Current Account of Balance of Payments in India ?
Asked in: UPPSC Upper Mains 2011
- Exports
- Imports
- Income from non-factor services
- Net non-resident deposits
Show answer
Answer: D. Net non-resident deposits
The Balance of Payments (BoP) is broadly divided into the Current Account and the Capital Account. The Current Account records transactions related to trade in goods (exports and imports), trade in services (like shipping, banking, tourism), income (like interest, dividends, wages), and current transfers (like remittances, grants). Options A (Exports), B (Imports), and C (Income from non- factor services - services trade) are all components of the Current Account. Net non-resident deposits (such as NRE, FCNR, NRO deposits) are capital flows. They represent liabilities of the domestic banking system to non-residents and are recorded under "Banking Capital" in the Capital Account of the BoP.
Consider the following statements: The Indian rupee is fully convertible I. in respect of Current Account of Balance of Payment. II. in respect of Capital Account of Balance of Payment. III. into gold. Which of these statements is/are correct?
Asked in: UPPCS Prelims 2000
- I alone
- III alone
- I and II
- I, II and III
Show answer
Answer: A. I alone
The Indian Rupee is fully convertible on the Current Account of the Balance of Payments, which means there are no restrictions on transferring funds for international trade in goods and services, income, and unilateral transfers. However, it is not fully convertible on the Capital Account, meaning there are restrictions on the movement of capital (investments, loans, etc.) into and out of the country. The Rupee is not convertible into gold through any official mechanism; gold prices are market-determined.
Assertion (A): Ceiling on foreign exchange for a host of current account transaction heads was lowered in the year 2000. Reason (R): There was a fall in foreign currency assets also.
Asked in: UPPCS Prelims 2001
- Both A and R are individually true, and R is the correct explanation of A
- Both A and R are individually true, but R is NOT a correct explanation of A
- A is true, but R is false
- A is false, but R is true
Show answer
Answer: C. A is true, but R is false
Assertion (A) states that the ceiling on foreign exchange for a host of current account transaction heads was lowered in the year 2000. Reason (R) states that there was a fall in foreign currency assets also.
The Rupee was made convertible on the current account of the balance of payments in
Asked in: WBCS Main Paper 5 2022
- July, 1991
- April, 1992
- August, 1994
- April, 1995
Show answer
Answer: C. August, 1994
- Current account convertibility allows freedom for transactions related to trade, services, income, and remittances. - India achieved full current account convertibility in 1994. - This was marked by India's acceptance of IMF Article VIII.
Indian Rupee is fully convertible in
Asked in: WBCS Main Paper 5 2023
- Current Account
- Capital Account
- Trade Account
- None of the above
Show answer
Answer: A. Current Account
Current account convertibility allows free flow of foreign exchange for transactions related to goods, services, and income.
Which of the following not compose the current account in the Balance of payments?
Asked in: moter vehicle inspector
- Export of goods
- Import of goods
- Foreign Direct Investment
- Export and Import of Services
Show answer
Answer: C. Foreign Direct Investment
The current account of the Balance of Payments primarily includes: 1. Trade in Goods Exports and imports of physical goods. 2. Trade in Services Exports and imports of services (e.g., tourism, transportation, financial services). 3. Primary
Policy Measures to Manage Current Account and Capital Account Balances
Which of the following statements with regard to the outcomes of the talks between the Prime Minister of India and the President of UAE held in February, 2024 is/are correct ? 1. Both countries signed an agreement on inter-linking of domestic debit/credit cards 2. An MoU was signed on cooperation in digital infrastructure projects 3. Both countries agreed that a Bilateral Investment Treaty shall be signed in the next meeting at the ministerial level Select the answer using the code given below :
Asked in: UPSC CAPF 2024 · CGPSC Prelims Exam 2013
- 1 and 2 only
- 2 only
- 1 and 3 only
- 1, 2 and 3
Show answer
Answer: A. 1 and 2 only
The outcomes of the visit included significant agreements in the financial sector (linking payment systems) and digital infrastructure. The Bilateral Investment Treaty was a key deliverable of this specific visit. Ans: B Petroleum products (mineral fuels, oils) constitute the largest category of imports for India.
Consider the following statements. 1. India is the world's largest crude oil importer, where nearly 80% of its needs are met through imports. 2. In the recent years, around one-fourth of India's crude oil imports come from Russia. Which of the above statements is/are correct?
Asked in: GPSC Prelims CSP 2 2024
- 1 only
- 2 only
- Both 1 and 2
- Neither 1 nor 2
Show answer
Answer: B. 2 only
Statement 1 is incorrect because India is not the world's largest crude oil importer; China holds that position. India is typically the third largest. However, the part about India meeting nearly 80% of its needs through imports is generally accurate. Statement 2 is correct. In recent years, particularly following geopolitical events since 2022, Russia has emerged as a significant supplier of crude oil to India, with its share increasing substantially to around or above one-fourth of India's total imports in various periods.
India's top crude oil supplier, meeting more than 1/5th of the country's oil needs in 2018 - 19 fiscal year was _______.
Asked in: KPSC KAS Prelims 2017
- Saudi Arabia
- Iraq
- Iran
- Afghanistan
Show answer
Answer: B. Iraq
In the fiscal year 2018-19, Iraq was India's largest crude oil supplier, meeting more than one-fifth of India's oil requirements.
Consider the following statements about India's electronics export:
Asked in: KPSC KAS Prelims 2024
- Karnataka was India's largest exporter of electronic goods in FY23, accounting for 30% of all electronic goods exports from India in FY24.
- The share of the electronic goods sector in India's overall exports has more than doubled in recent years.
- Exports of smartphones currently forms close to 40% of India's electronics exports.
- U.S.A. and China are the biggest mar‐ kets for India's electronic goods exports. E. In the last two final years, close to 40% of smartphones in India were sent out from Kanchipuram, Tamil Nadu. A. A, B and D B. B and D C. A, C and E D. B, C and E
Show answer
Answer: D. U.S.A. and China are the biggest mar‐ kets for India's electronic goods exports. E. In the last two final years, close to 40% of smartphones in India were sent out from Kanchipuram, Tamil Nadu. A. A, B and D B. B and D C. A, C and E D. B, C and E
- Tamil Nadu is currently the leading state in India's electronics exports. - India's electronics exports have grown significantly, increasing their share in total exports. - Smartphone exports, particularly iPhones, constitute a substantial portion of India's electronics exports. - Key export markets for India's electronics include USA, UAE, etc., not typically China. - Kanchipuram district is a major hub for smartphone manufacturing and exports in India.
Consider the following statements: (a) Uttar Pradesh and Karnataka dominated the electronics export amongst other Indian States till 2022. (b) In the last five financial years, Karnataka has shown consistent growth in electronics export. (c) Tamil Nadu has the highest export (in value INR) of electronic goods for the year 2023-24. How many statements is/are correct?
Asked in: KPSC KAS Prelims 2024
- Only 1 statement is correct
- Only 2 statements are correct
- Only 3 statements are correct
- All statements are incorrect
Show answer
Answer: B. Only 2 statements are correct
Statement (a) is correct; data for the financial year 2021-22 showed Uttar Pradesh and Karnataka as the top two states in electronics export, arguably dominating the sector among states till that period. Statement (b) is incorrect; a review of Karnataka's electronics export data over the last five financial years shows significant fluctuations and periods of slower or negative growth (e.g., FY2019-20 growth was minimal, FY2023-24 saw a decline from FY2022-23), thus the growth has not been strictly "consistent". Statement (c) is correct; according to government data for the financial year 2023-24, Tamil Nadu emerged as the top state in electronics export, surpassing Uttar Pradesh and Karnataka. Therefore, statements (a) and (c) are correct, and (b) is incorrect. This means two statements are correct.
In the recent past the export of which commodities have sharply risen ?
Asked in: MPSC CS Prelims 2012
- Sugar and cotton
- Gold and silver
- Tea and coffee
- Electronic goods and software
Show answer
Answer: D. Electronic goods and software
While the term "recent past" is relative and depends on the time the question was asked, the export of software and IT services from India has witnessed a sustained and sharp rise since the late 20th century, becoming a major component of India's exports. Electronic goods exports have also seen significant growth, particularly in more recent years due to initiatives like "Make in India". Compared to traditional exports like sugar, cotton, tea, and coffee, or commodities like gold and silver (which are net imports for India), the growth in software and electronic goods exports has been remarkably sharp and sustained.
What was the change in composition of India's import from 1991 to 2004 ?
Asked in: MPSC CS Prelims 2012
- Fall in import demand of petrol, lubricant and oil
- Rise in import of edible oil, pulses, sugar etc.
- Fall in the import of iron and steel
- None of the above
Show answer
Answer: B. Rise in import of edible oil, pulses, sugar etc.
Between 1991 and 2004, India's economy liberalized and grew significantly. While industrial imports (raw materials, capital goods) also rose, increasing population and rising incomes led to higher demand for essential food items. Domestic production of commodities like edible oil, pulses, and sugar often lagged behind demand, necessitating increased imports to bridge the gap. This was a notable compositional shift in India's import basket during this period.
Consider the following statements: 1. Angola and Nigeria are one of the largest crude oil suppliers of the sub-Saharan region. 2. India and Angola signed a bilateral energy cooperation agreement under the framework of India- Africa Forum. Which among the above statements is/are incorrect?
Asked in: PPSC CS Prelims 2021
- Only 1
- Only 2
- Both 1 and 2
- Neither 1 nor 2
Show answer
Answer: D. Neither 1 nor 2
Both Angola and Nigeria are major oil producers in Sub-Saharan Africa, and India maintains significant energy cooperation, including oil imports, with Angola, often discussed or facilitated within broader frameworks like the India-Africa Forum Summit.
The Indian Government gets __________ percent of India's total energy needs are met through imports.
Asked in: TNPSC CS Prelims 2017
- 30 percent
- 40 percent
- 20 percent
- 35 percent
Show answer
Answer: D. 35 percent
India is heavily reliant on imports, particularly for crude oil, which constitutes a large portion of its energy mix. While domestic production of coal, renewables, etc., contributes, the overall energy import bill remains substantial.
Which one among the following is the correct descending sequence of India's import of commodities in terms of value?
Asked in: UPSC CAPF 2012
- Capital Goods—Electronic Goods—Food Products—Fertilizers
- Fertilizers—Food Products—Electronic Goods —Chemicals
- Capital Goods—Electronic Goods—Food Products—Chemicals
- Electronic Goods—Capital Goods—Fertilizers —Food Products
Show answer
Answer: A. Capital Goods—Electronic Goods—Food Products—Fertilizers
- Capital Goods and Electronic Goods typically represent significant portions of India's import bill, reflecting industrialization, technological needs, and consumer demand. - While essential, Food Products and Fertilizers imports, while substantial, often rank lower in overall value compared to major industrial inputs and finished goods like Capital and Electronic goods, although their ranking can fluctuate based on domestic production and global prices. - The provided options reflect broad categories, and precise ranking can vary slightly year-to-year, but Option A aligns best with the general trend of major import categories for India during the period. (Note: Crude Petroleum is usually India's largest import, but it is not among the options).
The term 'West Texas Intermediate', sometimes found in news, refers to a grade of
Asked in: UPSC IAS 2020
- Crude oil
- Bullion
- Rare earth elements
- Uranium
Show answer
Answer: A. Crude oil
- WTI refers to a grade of crude oil produced in Texas and Southern Oklahoma, USA. It is a major benchmark for oil pricing, particularly in North America. Other common benchmarks include Brent Crude (for European and global markets) and Dubai/Oman (for Middle Eastern/Asian markets).
India imports maximum gold from which country?
Asked in: WBPSC CS Prelims 2018 · WBCS Main Paper 4 2022
- Switzerland
- UAE
- South Africa
- Brazil
Show answer
Answer: A. Switzerland
Switzerland is a major global hub for gold refining and trading. A significant portion of the world's mined gold is sent to Switzerland for processing into bars and other forms, which are then exported worldwide. India, being a major consumer of gold, sources a large quantity of its imports from Switzerland due to its role in the global gold market.