CA Foundation · Business Economics · International Trade
India's balance of trade shows imports exceeding exports in a given quarter. Which of the following best explains what this indicates about India's international trade position?
When India's imports exceed exports, the country is running a trade deficit, meaning it is purchasing more goods and services from abroad than it is selling internationally during that period. This is a common occurrence and requires analysis of underlying factors like domestic demand and relative competitiveness.
- AIndia is losing its manufacturing competitiveness and will never export again
- BIndia is importing more goods and services in value terms than it is exporting during that periodCorrect
- CIndia's imports are always funded by external debt, indicating economic distress
- DThe rupee is overvalued and the government must immediately devalue it
Explanation
A trade deficit (imports > exports) simply means more goods and services are being imported than exported in value terms during that period. It is a normal occurrence for many countries and does not automatically signal incompetence or permanent loss. Option 0 overgeneralises; Option 2 confuses trade deficits with debt financing; Option 3 misattributes cause and effect.
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