Which sector played a key role in cushioning India's overall trade deficit in the financial year 2023 - 24 ?
- (a)Agricultural exports
- (b)Merchandise exports
- (c)Service exports
- (d)Automobile exports
Correct — C, Service exports. In 2023-24 India ran a large deficit on goods trade but a large surplus on services. Services exports were about US$341 billion, giving a net services surplus of roughly US$163 billion, which — together with remittances — absorbed most of a merchandise trade deficit of about US$240 billion. The result was that India's current account deficit narrowed to about 0.7% of GDP in 2023-24, from 2.0% in 2022-23. Software and IT services, along with business and professional services, drove that surplus.
- (a)Agricultural exports — Agricultural and allied exports are of the order of US$50 billion — a small slice of the trade account — and they actually declined in 2023-24 as export curbs on non-basmati rice, wheat and sugar stayed in force. Nowhere near enough to cushion a deficit of that size.
- (b)Merchandise exports — Merchandise is the side that creates the problem, not the cushion: goods imports (crude oil, gold, electronics) exceeded goods exports through 2023-24, so the merchandise account was itself in deficit.
- (d)Automobile exports — Automobiles are a growing but small line item inside merchandise exports. Being part of the goods account, they are already netted into the merchandise deficit and cannot offset it.
India's external account has two halves. The merchandise (goods) account is chronically in deficit because of crude oil, gold and electronics imports. The invisibles — services, remittances and income — are in surplus, and services (IT/software, business and professional services) are the single biggest item there. Because the current account balance equals the balance of trade plus the balance of invisibles, a services surplus directly shrinks the overall external gap.
Read the question as 'which part of India's external account is in surplus?' Three options — merchandise, agricultural and automobile exports — are all goods, and goods are the deficit side. Only services sit on the surplus side of the invisibles account. Lock the standing pattern: goods deficit, services and remittances surplus, and a comparatively small current account deficit.
- India's services exports were about US$341 billion in 2023-24, producing a net services surplus of roughly US$163 billion (RBI balance of payments data).
- The merchandise trade deficit in 2023-24 was around US$240 billion — bigger than the services surplus, which is why a current account deficit still remains.
- India's current account deficit narrowed to about 0.7% of GDP in 2023-24, from 2.0% of GDP in 2022-23.
- India is the world's largest recipient of remittances, at over US$100 billion a year — the second big cushion alongside services.
Goods deficit, offset by services and remittance surpluses, leaves only a small current account deficit.
- Mixing up the balance of trade (goods only) with the balance of payments (all transactions)
- Thinking FDI or FPI inflows reduce the current account deficit — they finance it, and they sit on the capital account
- Assuming the trade deficit and the current account deficit are the same number
MPPSC asks a direct 'which sector/which item' question drawn from the Economic Survey. UPSC prefers statement-based questions on what constitutes the current account, or which government actions would reduce a current account deficit.
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.
- (a) 1 only
- (b) 2 and 3
- (c) 1 and 3
- (d) 1, 2 and 4
Answer(c) 1 and 3
The exact idea behind the MPPSC question — the current account is the balance of trade PLUS the balance of invisibles, and services are the largest invisible.
Consider the following actions which the Government can take: 1. Devaluing the domestic currency. 2. Reduction in the export subsidy. 3. Adopting suitable policies which attract greater FDI and more funds from FIIs. Which of the above actions can help in reducing the current account deficit?
- (a) 1 and 2
- (b) 2 and 3
- (c) 3 only
- (d) 1 and 3
Answer(d) 1 and 3
Same external-gap concept from the policy side — what actually narrows India's current account deficit, which in 2023-24 was the services surplus.
- practice — not a real PYQ
In India's balance of payments, the 'invisibles' account mainly comprises:
- (a)Merchandise exports and imports
- (b)Services, transfers (remittances) and income
- (c)Foreign direct investment and portfolio flows
- (d)Changes in foreign exchange reserves
Answer(b) Services, transfers (remittances) and income — the non-goods part of the current account.
- practice — not a real PYQ
India's current account deficit narrowed sharply in 2023-24 mainly because of:
- (a)A collapse in merchandise imports to near zero
- (b)A record surplus on services exports and remittances
- (c)Higher external commercial borrowings
- (d)A surge in foreign direct investment
Answer(b) A record surplus on services exports and remittances — ECBs and FDI are capital-account flows that finance the deficit rather than reduce it.