Topic Details (Notes format)

External Sector Overview

Subject: Economics

Book: Comprehensive Indian Economy

India’s external sector includes trade in goods/services, capital flows (FDI, FPI), external commercial borrowings, and currency exchange. Policies strive to maintain a healthy balance of payments and adequate foreign exchange reserves. Key agencies—like the Directorate General of Foreign Trade—oversee export-import regulations. The shift from a closed economy to an export-oriented one brought new challenges: trade imbalances, currency fluctuations, and global competitiveness. Exam angles often cover India’s major trading partners, trade deficits with specific blocs, and how FTAs shape domestic industries. Students should also watch for external shocks like global oil price spikes or changing US Fed rates.

Practice Questions

What is “inclusive growth”?

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What is the concept of “invisible hand” associated with?

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Which of the following is an example of a non-renewable resource?

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What is the significance of “Purchasing Power Parity” (PPP)?

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What does “Laissez-faire” policy advocate?

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Which term refers to the decrease in the value of a currency relative to foreign currencies?

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What does the “Human Development Index” measure?

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What is the main function of the Reserve Bank of India (RBI)?

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Which of the following measures can reduce a trade deficit?

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What is the objective of the Goods and Services Tax (GST)?

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