Topic Details (Notes format)

External Sector Overview

Subject: Economics

Book: Comprehensive Indian Economy

India’s external sector includes trade in goods/services, capital flows (FDI, FPI), external commercial borrowings, and currency exchange. Policies strive to maintain a healthy balance of payments and adequate foreign exchange reserves. Key agencies—like the Directorate General of Foreign Trade—oversee export-import regulations. The shift from a closed economy to an export-oriented one brought new challenges: trade imbalances, currency fluctuations, and global competitiveness. Exam angles often cover India’s major trading partners, trade deficits with specific blocs, and how FTAs shape domestic industries. Students should also watch for external shocks like global oil price spikes or changing US Fed rates.

Practice Questions

Which is the largest source of tax revenue for the Government of India?

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What is the primary purpose of Special Economic Zones (SEZs)?

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What is the term for the ability of an economy to produce more output from the same inputs?

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What is “quantitative easing”?

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What is the meaning of “supply-side economics”?

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What is meant by “stagflation”?

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What is the meaning of “dumping” in international trade?

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Which term refers to the decrease in the value of a currency relative to foreign currencies?

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Which of the following is considered a public good?

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What is the main feature of a free-market economy?

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