CA Foundation · Business Economics · International Trade
The Government of India gives an export subsidy of ₹5 per metre to textile exporters. Which of the following is the most likely immediate effect of this subsidy?
An export subsidy lets exporters sell at lower prices abroad, improving the competitiveness of Indian textiles in foreign markets. The government pays ₹5 per metre, which lowers the exporters' effective cost. It increases government spending, not revenue, and does not limit imports.
- AExporters can sell abroad at a lower price, making Indian textiles more competitive in foreign marketsCorrect
- BIndian textile exports become costlier abroad
- CImports of textiles into India are directly restricted in quantity
- DThe government's revenue rises by ₹5 per metre exported
Explanation
An export subsidy reduces the producer's effective cost, so exporters can lower the foreign selling price and gain competitiveness. It is a payment by the government, so it raises government expenditure rather than revenue. It does not restrict imports, so that option describes a quota.
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