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External Sector — UPSC Prelims Economy previous year questions — page 3

97 solved previous year questions on External Sector, papers from 1992 to 2021, drawn from State PCS, UPPCS, UPSC CSE Prelims. Each carries the printed answer key and the explanation from the source compilation.

1. #81Practice set
   If Foreign Direct Investment (FDI) flow in a country increases, which of the following will be the effects of this increase? 1. Increase in exports 2. Decreased production of Industrial Sector 3. Decrease in National IncomeSelect the correct answer using the code given below
   • A1 only
   • B1 and 3 only
   • C2 and 3 only
   • D1, 2 and 3
   Answer: (A) 1 only
   Explanation

   Option a is the correct l is correct. Due to increased foreign will be capital and technology influx. This the export basket of India, as with the help of FDI horizontally there will be more products and of the products will improve. This in turn would increase in 2 is incorrect. With FDI inflow there will in productivity in the economy. Industrial also see increase in 3 is incorrect. There is an increase in through the FDI itself, but this will be a positive multiplier effect on the economy so that increase in national income is greater than the of FDI

2. #82Practice set
   Which one of the following statements given below best describe the term "Harmonized System of Nomenclature code"?
   • AIt is a machine learning language developed by Google Inc in collaboration with Infosys
   • BIt is an international nomenclature for the classification of products
   • CIt is a genetic code to help ascertain uniformity in the classification of protein
   • DIt is mathematical model developed to get better results in forecasting weather related services
   Answer: (B) It is an international nomenclature for the classification of products
   Explanation

   Option b is the correct HSN Code is a six-digit identification code. The Organization (WCO) developed this code in is an international nomenclature for the classification It allows participating countries to classify on a common basis for customs purposes. The called the universal economic language for goods, is international product nomenclature. Important Tips The HSN code currently comprises around 5,000 commodity groups. Each Code is a unique six-digit code that has numbers arranged in a legal and logical structure

3. #83Practice set
   Which of the following would lead to a depredation of Indian rupee? 1. Increase in the import bill. 2. Higher fiscal deficit. 3. Increase in interest rates by US federal reserve. PracticebooSelect the correct answer using the codes given below
   • A1 only
   • B1 and 2 only
   • C1, 2 and 3
   • D2 and 3 only
   Answer: (C) 1, 2 and 3
   Explanation

   Option c is the correct l is correct. Currency depreciation is a fall value of a currency in a floating exchange rate import bill could lead to the outflow of dollar economy and increase the value of dollar as Indian rupee in market economy which could lead to of Indian 2 is correct. Higher fiscal deficit would lead to of Indian rupee. A country running large is always at risk of seeing the value of the If there arc insufficient capital flows to finance the exchange rate will fall to reflect the imbalance flows of 3 is correct. Increase in interest rates by US leads to a depreciation of Indian rupee. When Reserve increases the federal funds rate, it rates throughout the economy. The higher investment capital from investors abroad returns on bonds and interest-rate products. in a stronger exchange rate in favor of the U.S. a weaker exchange rate in the favor of Indian could lead to the de

4. #84Practice set
   Which of the following can help in reducing the Current account deficit of India:fill.Forum 1. Currency devaluation 2. Reducing duties on exports 3. Full capital account convertibility 4. Good supply side policiesSelect the correct answer using the codes given below
   • A1, 2 and 3 only
   • B1, 2 and 4 only
   • C1 and 4 only
   • D1, 2, 3 and 4
   Answer: (B) 1, 2 and 4 only
   Explanation

   Option b is the correct l is correct. A weak domestic currency makes exports more competitive in global markets, makes imports more expensive. volumes spur economic growth, while pricey have a similar effect because consumers opt for local alternatives to imported products. This improvement in of trade generally translates into a lower deficit (or a greater current account employment, and faster GDP 2 is correct. Reducing duties on export the cunent account deficit due to increased country can reduce its existing debt by increasing of its exports relative to the value of imports. It restrictions on imports, such as tariffs or quotas, or emphasize policies that promote export, such as 3 is incorrect. Full capital account bring long term instability in the economy as a person can withdraw long term investments from at any point in time. Some of the higher volatility, an increased burden of

5. #85Practice set
   With reference to the international trade, consider the following statements: 1. Tariffs are a type of trade barrier that can have the effect of raising the relative prices of imported products. 2. The World Trade Organisation agreements strictly prohibit the imposition of trade barriers. 3. 'Quotas' are mainly aimed at generating extra revenue for the government.How many of the above given statements are correct?
   • AOnly one
   • BOnly two
   • CAll three
   • DNone
   Answer: (A) Only one
   Explanation

   Option a is the correct trade barrier refers to any regulation or policy that trade, especially tariffs, quotas, licenses l is correct: Tariffs are a type of barrier that can come in several forms. Tariffs a few domestic sectors. Tariffs are paid by and not the exporting country, but they have of raising the relative prices of imported 2 is incorrect: WTO's Technical Barriers Agreement (TBT) tries to ensure that testing and certification procedures do not obstacles to trade. The WTO agreements exceptions in some circumstances. Three of actions taken against dumping (selling at an unfairly low subsidies and special "countervailing" to offset the emergency measures to limit imports temporarily. designed to "safeguard" domestic 3 is incorred: Quotas are a type of governments enacts to restrict trade. Quotas limiting the quantities of a particular good that a or exports for a specific period

6. #86Practice set
   Consider the following shitemcnts regarding Balance of Payments Accounts in India: 1. Export of goods services forms the part of Current Account transactions. 2. External assistance in the form of intergovernmental loans is a part of Capital Account transactions. 3. Transactions which are made to cover deficits in are called as Autonomous transactions.How many of the above given statements are correct?
   • AOnly one
   • BOnly two
   • CAll three
   • DNone
   Answer: (B) Only two
   Explanation

   Option bis the correct l is correct: Current account is the record in goods and services and transfer payments. income Shipping, Insurance, Tounsm Software services etc. Net income from ( compensation of jnvestment income l 2 is correct: External assistance in the form loans is classified under capital These also include multilateral and bilateral Account records all international transactions and liabilities. For example, if an Indian from a foreign bank, it is a capital account are the components of capital 3 is incorrect: Autonomous transactions of the and they are not made reduce the deficit in the Accommodating determined by the gap in balance of payments. In they aim to bridge gap in balance of payments. of foreign exchange by the RBI during deficit sale) is an example of accommodating transaction. Important Tips The Balance of Payments is a statement of transactions in goods servi

7. #87Practice set
   Which of the following is/are covered under the Trade Facilitation Agreement of World Trade Organization? 1. Lowering import tariffs 2. Developed countries to abolish hard import quotas on agricultural products from developing ones. 3. Reform custom bureaucracySelect the correct answer using the code given below
   • A2 and 3 only
   • B1 only
   • C1 and 2 only
   • D1, 2 and 3 940
   Answer: (D) 1, 2 and 3 940
   Explanation

   Option d is the correct l is correct. It provides for lowering import agricultural subsidies to make it easier for to trade with the developed world in 2 is correct. It ensures that developed abolish hard import quotas on agricultural thf' clf'vf'lopinr, worlcl Tn be allowed to charge tariffs on amount of exceeding specific 3 is correct. It aims to cut red-tape at borders trade by reforming customs bureaucracies Important Tips Trade Facilitation Agreement was signed under World Trade Organization's Bali Ministerial Conference in 2013 and came into force from 2017. It aims to simplify up by ior enhancing trade

8. #88Practice set
   With reference to the supply of oil and control of oil prices across the world, consider the following statements: 1. The nations regulate the prices of crude oil in market by adjusting the global supply of crude oil. 2. All oil production function of nations are performed by their respective National Oil Companies.Which of the statements given above is/are correct?
   • A1 only
   • B2 only
   • CBoth 1 and 2
   • DNeither 1 nor 2
   Answer: (A) 1 only
   Explanation

   Option a is the correct l is correct. nations hold the power the supply and demand of crude oil to balance OPEC directly influences the value of these regulates the supply of oil in order to influence of the commodity on the world 2 is incorrect. In OPEC countries most of production functions are performed by the National (NOC). Whereas the oil production function countries which export crude oil and OPEC nations form the group, is performed or Investor-owned oil companies (IOC). Important Tips OPEC stands for the Organization of the Petroleum Exporting Countries, was formed in Baghdad in 1960 by Iraq, Iran, Kuwait, Saudi Arabia, and Venezuela. it has 13 members apart from the founding members it include-Algeria, Angola, Congo, Equatorial Guinea, Gabon, Libya, Nigeria and the United Arab Emirates. Its headquarters is in the Austrian capital Vienna. In 2016, OPEC formed an alliance with o

9. #89Practice set
   With regard to water management in India, which of the following statements is/are correct:? 1. India has always been a net importer in virtual water trade. 2. Micro-irrigation covers more than of irrigated area in India. 3. Power supply interruptions is one of the major impediments in adopting micro irrigation in India.Select the correct answer using the code given below
   • A1 and 2 only
   • B3 only
   • C2 and 3 only
   • D1 and 3 only
   Answer: (B) 3 only
   Explanation

   Option bis the correct l is incorrect. India is not a net importer exporter in virtual water trade. India is a large export of water because of agricultural products. trade means trade in water intensive exports water intensive commodities like rice, soybean. The ratio of virtual water export is Thus India is a net exporter in virtual 2 is incorrect. Micro irrigation covers only irrigated area in India which is much less than It is the slow application of water as tiny miniature spray on, ahove, or helow the soil hy subsurface drip, bubbler and micro-sprinkler emitters are connected to a water delivery line 3 is correct. Widespread power outages interruptions affects the timing and water to crops. It is therefore a disincentive for adopt technology-intensive micro-irrigation system regime of power outages. Other major impediments constraints, cropping pattern etc. show that the micro-irr

10. #90Practice set
    Con.sider the following statements regarding fertilizers in India: 1. India is a net exporter of urea. 2. India relies on imports to fulfil its almost entire consumption of potash.Which of the statements given above is/are correct?
    • A1 only
    • B2 only
    • CBoth 1 and 2
    • DNeither 1 nor 2
    Answer: (B) 2 only
    Explanation

    Option b is the correct 1 is incorrect. India is not a net exporter of dependency on import at present is to the extent of our requirement of Urea, in case of as raw material or finished 2 is correct. In the case of potash, India relies to fulfil its entire consumption, bringing in 4 million tonnes every year. The Government has Indian Companies to establish Joint in Countries which are rich in fertilizer production facilities with buy back arrangements and inlo lone tnm for of inputs to India

11. #91Practice set
    Consider the following statements:47. 1. The Indian Seeds programme recognizes two generations of seeds, namely, foundation and certified seeds. 2. Under the automatic route, FDI is allowed up to in production and development of seeds. 3. In India, import of planting materials and seeds are governed by New Policy on Seed Development, 1988.How many of the statements given above are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (A) Only one
    Explanation

    Option a is the correct 1 is incorrect. Breeder, foundation, and are the three generations of seeds recognised by Seeds 2 is incorrect. According to the current is allowed up to through the automatic route in and production of seeds and planting approval of FDI up to would promote the foreign investment into the seed sector and would it easier for domestic seed companies to expand efforts in order to produce better varieties of Statement 3 is correct. The New Policy on Seed was formulated to provide Indian farmers access best planting materials available worldwide while productivity, farm incomes, and earnings The New Policy on Seed Development, the import of seeds and other planting materials

12. #92Practice set
    Consider the following statements with reference to the Edible Oil sector of India. l. India imports more than of its edible oil requirement. 2. Sunflower oil accounts for more than of all edible oil imports. 3. Rajasthan is the largest mustard oil producing state in India.How many of the statements given above are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option bis the correct 1 is correct. More than half of India's edible is imported, India's dependence on oil imports is to the tune of India is the consumer and number one vegetable oil, and it meets 55-60 per cent of its 2 is incorrect. Sunflower oil accounts for all edible oil imports of India. India imports 25 of sunflower oil annually, of which comes and from 3 is correct. Rajasthan is the largest mustard state in the country. Currently, Rajasthan (41 Madhya Pradesh and Haryana (8 have a of in the mustard seed sown area in the l. Solution: Option c is the correct l and 2 are correct. Reversative or natural farming) - a low--cost approach greenhouse gas matter increase can help with carbon also improving the soil's microbial population

13. #93Practice set
    With reference to the Rice Export Promotion Forum, consider the following statements: 1. It has been set up as joint initiative of Federation of Indian Chambers of Commerce Industry (FICCI) and Confederation of Indian Industry ( CII). 2. The new body will work under the Agricultural and Processed Foods Export Promotion Development Authority (APEDA). 3. It will focus on how to increase rice exports from India.Which of the statements given above is/are correct?
    • A1 and 2 only
    • B2 and 3 only
    • C1 and 3 only
    • D1, 2 and 3
    Answer: (B) 2 and 3 only
    Explanation

    Option bis the correct 1 is incorrect: Rice Export Promotion Forum has been set up by the government of India under the aegis of the APED A and not by FI CCI and CII. The new body will comprise representatives from the rice industry, exporters, and officials from APEDA, Commerce Ministry, Agriculture Ministry and Directors of Agriculture from major rice producing 2 is correct: The new body will work Agricultural and Processed Foods Export Authority (APEDA). APEDA is a established by the Government of India Agricultural and Processed Food Products Authority Act 1985. The Authority Processed Food Export Promotion Council under the Ministry of Commerce and export of agricultural and processed food 3 is correct: The export promotion identify, document particulars and reach out across the entire production/ supply chain export of rice for increasing these exports. The new monitor, identify an

14. #94Practice set
    Which of the following statements is/are NAMA (non-agriculture market access) agreement in WTO? 1. Bound tariffs in NAMA are those tariff lines on which the WTO member had taken a binding level in the earlier round of multilateral negotiations, whereas unbound tariffs are those on which members did not undertake any binding commitment on several tariff lines. 2. NTMs (Non-Tariff measures) in NAMA are unfair measures which serve to discriminate against imports. 3. NAMA 11 coalition was formed by a group of developed countries opposing the demand of reduction in tariffs peaks by developing countries.Select the correct answer using the code given below
    • A1 only
    • B2 and 3 only
    • C1 and 2 only
    • D1 and 3 only
    Answer: (A) 1 only
    Explanation

    Option a is the correct 1 is correct: Bound tariffs in NAMA are lines on which the WTO member had taken a in the earlier round of multilateral unbound tariffs are those on which members undertake any binding commitment on several 2 is incorrect: It is not NTM but NTBs (non-tariff barriers) which are which serve to discriminate against imports. trade related procedures such as and inspections, technical regulations 3 is incorrect: The NAMA-11 - is the developing countries (including India) with in the NAMA trade negotiations i.e. reduction peaks, tariffs rise etc

15. #95Practice set
    Consider the following statements regarding Agricultural and Processed Food Products Export Development Authority (APEDA): 1. It is a statutory body established by the act of the Parliament in December, 1985. 2. It registers the persons as exporters of the scheduled products on payment of prescribed fees. 3. The authority has been vested with the powers to issue phytosanitary certificate for exporting agricultural commodities from India.How many of the statements given above are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option b is the correct l is correct: The Agricultural and Products Export Development Authority established by the Government of India Agricultural and Processed Food Products Authority Act passed by the Parliament in Statement 3 is incorrect: In India Directorate of 1985. Protection, Quarantine and Storage (PPQS) (not 2 is correct: In accordance with the Agricultural are in charge of issuing phytosanitary certificate. Processed Food Products Export Development Authority Phytosanitary Certificate (PSC) main motive is 1985, the functions of the Authority include registration protection and safeguarding the consignment. persons as exporters of the scheduled products on certificate is compulsory for custom clearance and of such fees as may be prescribed. agricultural commodities from India

16. #96Full-length test
    With to technical textiles, consider the following statements: 1. They are made using both natural as well as man -made fibres. 2. Foreign Direct Irivestment (FDI) under automatic route is allowed in technical textile industries in India. 3. India is the largest exporter of technical textile in the world.How many of the above given statements are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option bis the correct textiles ate engineered' products with a Technical textiles, a sunrise sector, more relevant during Covid-19 crisis as import dependent for Personal Protective I is correct: It is true that Technical manufactured using natural as well such as Nomex, Kevlar, Spandex, Twaron that functional properties such as higher insulation, improved thermal resistance etc Statement 2 is correct: It is true that currently Investment under automatic route is allowed textiles sector. The of Ind,ia, initiative to increase the India Statement 3 is is the largest textile in world, not India

17. #97Full-length test
    With reference to Active Pharmaceutical Ingredients. (A.Pis), consider the following statements: 1. They are crucial for drug delivery within the body, but they do not have any medicinal properties. 2. India imports majority of its requirements of from China. 3. Under the Production Linked Incentive Scheme, the Union government provides financial assistance to pharma industries to promote the manufacturing of in India.How many of the statements given above are correct?
    • AOnly one
    • BOnly two
    • CAll three
    • DNone
    Answer: (B) Only two
    Explanation

    Option b is the correct l is incorrect: are active ingredients drugs that are responsible for the beneficial experienced by consumers. An example of an API acetaminophen contained in a pain relief the other hand, Pharmaceutical Excipients are drug delivery within the body and generally they medicinal properties. Its standard purpose is to absorption of the 2 is correct: India imports around of Ingredients from China in terms 3 is correct: Production Linked Scheme for promotion of domestic Active Pharmaceutical Ingredients In for financial incentives to manufacturers the scheme for manufacturing of 41 eligible covers 53 Therefore, it is true that the provides financial assistance. under the to promote domestic manufacturing of incentives will be provided on incremental sales participants for a period of 6 years. The outlay of the scheme is Rs. 6,940 crore and of the scheme is from FY 2020

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