Chapter on Finance

UPSC Prelims 2025 Notes

 BALANCE OF PAYMENT (BOP)

  • After remaining at elevated levels in 2011-12 and 2012-13, current account deficit (CAD) declined significantly in 2013-14 mainly on account of the success of the measures to contain non-essential imports like gold.
  • Merchandise exports increased by 3.9% to US$ 318.6 billion in 2013-14.
  • Imports declined by 7.2% to USEB 466.2 billion in 2013-14.
  • The recovery in exports and moderation in imports led to a sharp improvement in the trade deficit to US$ 147.6 billion (7.9% of GDP) in 2013-14.
  • Net invisible receipts increased2% to US$ 115.2 billion in 2013-14.
  • Contraction in the trade deficit, coupled with a rise in net invisibles receipts, resulted in a reduction of the CAD to US$ 32.4 billion (1.7% of GDP) in 2013-14.
  • Net capital inflows, however, declined to US$ 47.9 billion (2.6% of GDP) in 2013-14 owing to lower net portfolio inflows and net repayment of short-term debt.
  • Foreign exchange reserves increased by US$ 15.5 billion during 2013- 14.

 FOREIGN EXCHANGE RESERVES

India’s foreign exchange reserves comprise:

  1. Foreign Currency Assets (FCAs),
  2. Gold,
  3. SDRS
  4. Reserve Tranche Position (RTP) in the IMF

At the end of March, 2014, foreign exchange reserves stood at US$ 304.2 billion, indicating an increase of US$ 12.2 billion over the level of US$ 292.0 billion by the end of March, 2013.

EXTERNAL DEBT

  • India’s external debt stock stood at US$ 440.6 billion at end-March, 2014 recording an increase of US$ 31.2 billion over the level at end-March, 2013.
  • The maturity profile of India’s external debt indicates dominance of long-term borrowings particularly NRI deposits.
  • A sharp increase in NRI deposits reflected the impact of fresh Foreign Currency Non-Resident (Banks) FCNR (B) deposits mobilized under the swap scheme during September-November, 2013.
  • By the end of March, 2014, long-terrn external debt was US$ 351.4 billion, showing an increase of 12.4%.
  • Long-term external debt accounted for 7% of total external debt at end- March, 2014.
  • The share of US dollar denominated debt continued to be the highest in external debt stock at 61.8%, followed by Indian Rupee (21.1%), SDR (9%), Japanese Yen (5.1%) and Euro (3.4%).
  • Government (Sovereign) external debt at end-March, 2014 stood at US$ 81.5 billion.
  • The share of Government external debt in India’s total external debt declined from 20.0% to 18.5% at end-March 2014.
  • India’s foreign exchange reserves provided a cover of 69% to the external debt stock at end-March, 2014 (71.3% at end- March, 2013).
  • The ratio of short term external debt to foreign exchange reserves was 3% at end-March, 2014.
  • The ratio of concessional debt to total external debt declined to 10.5% at end-March, 2014, reflecting the increasing share of non-Government debt.

 MERCHANDISE TRADE

  • India’s share in global trade has increased gradually over the period of time.
  • India’s share in global exports and imports increased to 1.7% and 5% respectively in 2013.
  • Its ranking in the leading exporters and importers has also improved to 19 and 10, respectively in 2012.
  • India’s total merchandise trade as percentage of the Gross Domestic Product (GDP) has also increased to 8% in 2013-14.
  • Trade deficit registered a sharp decline of 27.8% to US$ 137.5 billion in 2013-14.

Current Affairs for IAS Exam