NDA (I) 2017 General Ability Test · Question 105 of 149

Correct — D, China. A country's rank as a trading partner is decided by two-way merchandise trade, that is exports plus imports taken together, and on that measure China stood at the top of India's list in 2015-16. China held that position for a long unbroken run — the standard record has it as India's largest trading partner right through the period from 2008 to 2021 — and the reason lies almost entirely on the import side. India buys electronics, telecom equipment, machinery, organic chemicals and fertilisers from China on a scale it buys from nobody else, while its own exports to China are modest, so the combined total is the largest even though the flow is badly one-sided.

• (a)United States of America — The United States is India's single biggest export destination and the one large partner with which India runs a trade surplus, and that is exactly why this option tempts. Rank as a trading partner, however, counts imports as well, and India's purchases from China in that year were far larger than its purchases from the United States, which is why the American total fell short of the Chinese one.
• (b)United Kingdom — Britain has not been among India's leading trade partners for decades. Its share of India's two-way merchandise trade is a small fraction of China's, and it is chosen here only on the strength of the historical connection, not on any trade figure.
• (c)United Arab Emirates — The UAE is genuinely one of India's top few partners, carrying crude oil and gold inwards and gems, jewellery and engineering goods outwards, and it also serves as a re-export hub for the region. It was not, however, the leader in 2015-16 — the Chinese total was larger.

External trade is measured in two directions. Exports plus imports give total two-way trade, and it is this total that decides who a country's 'largest trading partner' is. Exports minus imports give the balance of trade, which decides whether the relationship is a surplus or a deficit one. A country can therefore be your biggest partner and your biggest deficit at the same time, which is precisely India's position with China, while another country can be your biggest export market and yet rank lower on total trade.

The examiner is testing whether you can separate the two measures. The instinct of most candidates is to name the United States, because it is the market Indian exporters talk about most; but exports alone do not settle the ranking. Anchor the answer to the year the paper names — as of the April 2017 exam, China led India's external trade for 2015-16. Nine years on, that ranking has changed hands more than once between China and the United States, so treat the number as a snapshot of one financial year and check the latest Department of Commerce or DGCIS release before repeating it as current.

• The rank of a trading partner is fixed by two-way trade — exports plus imports — and not by exports alone.
• China was India's largest trading partner through the long stretch from 2008 to 2021, which covers the 2015-16 year named in this question.
• India's largest merchandise trade deficit is with China, because imports from China far exceed exports to China.
• The United States is India's largest single export destination and the major partner with which India records a trade surplus.

• Treating the largest export market as the largest trading partner — the two are different measures.
• Carrying a ranking from one financial year into another; partner ranks shift year to year.
• Confusing a large partner with a favourable partner — the biggest partner can also be the biggest deficit.

NDA asks which country led India's trade in a named year, or which commodity heads India's export or import list.

• practice — not a real PYQ

  The rank of a country as India's largest trading partner in a given year is decided by

  • (a)the value of India's exports to that country alone
  • (b)the value of India's imports from that country alone
  • (c)the sum of India's exports to and imports from that country
  • (d)the size of India's trade surplus with that country

  Answer(c) the sum of India's exports to and imports from that country — total two-way merchandise trade is the measure used.

• practice — not a real PYQ

  With which one of the following countries has India recorded its largest merchandise trade deficit in recent years?

  • (a)United States of America
  • (b)China
  • (c)Bangladesh
  • (d)Nepal

  Answer(b) China — India's imports from China are far larger than its exports to China, producing the widest deficit of any partner.