Podcast
Questions and Answers
What does the Balance of Payments (BoP) primarily record?
What does the Balance of Payments (BoP) primarily record?
- The country's monetary policy changes over a financial year
- The total economic output of a country for a financial year
- All external financial transactions between residents and non-residents (correct)
- All internal financial transactions within a country
What is a key function of custom duties within the External Sector Policy?
What is a key function of custom duties within the External Sector Policy?
- To eliminate export incentives
- To promote foreign investments only
- To manage currency exchange rates
- To regulate imports and protect domestic industries (correct)
Which of the following best describes the impact of the Atmanirbhar Bharat policy on foreign investment?
Which of the following best describes the impact of the Atmanirbhar Bharat policy on foreign investment?
- Increased restrictions on foreign ownership to enhance local businesses
- Enhanced limits of foreign ownership to up to 100% in some sectors (correct)
- Complete reduction of foreign investment opportunities
- Discouragement of all forms of external investment
What is one target variable of the External Sector Policy?
What is one target variable of the External Sector Policy?
Which statement is true regarding inward versus outward looking policies?
Which statement is true regarding inward versus outward looking policies?
Which statement accurately describes an outward looking policy?
Which statement accurately describes an outward looking policy?
What were the primary features of India's pre-reform external sector policy?
What were the primary features of India's pre-reform external sector policy?
How does the external sector policy impact aggregate demand?
How does the external sector policy impact aggregate demand?
What is one of the goals of external sector policy?
What is one of the goals of external sector policy?
What is the role of custom duties in trade policy?
What is the role of custom duties in trade policy?
What change characterized India’s external sector policy post-1991?
What change characterized India’s external sector policy post-1991?
Which option best describes the balance of payments structure affected by external sector policies?
Which option best describes the balance of payments structure affected by external sector policies?
What does an inward looking policy primarily aim to achieve?
What does an inward looking policy primarily aim to achieve?
Which of the following components is included in the Current Account?
Which of the following components is included in the Current Account?
What happens when total inflow is less than total outflow in the current account?
What happens when total inflow is less than total outflow in the current account?
Which of the following describes a potential risk associated with high current account deficits?
Which of the following describes a potential risk associated with high current account deficits?
In the Balance of Payments structure, which account includes net foreign direct investment?
In the Balance of Payments structure, which account includes net foreign direct investment?
Which of the following is NOT a type of capital account funding?
Which of the following is NOT a type of capital account funding?
Which component of foreign investment specifically involves capital flows in the portfolio investment category?
Which component of foreign investment specifically involves capital flows in the portfolio investment category?
What impact can high custom duties have on foreign investments?
What impact can high custom duties have on foreign investments?
Which aspect of the monetary movements is affected by the Balance of Payments?
Which aspect of the monetary movements is affected by the Balance of Payments?
Flashcards are hidden until you start studying
Study Notes
Restrictions on Foreign Investments
- Economy opened to various forms of foreign investments with enhanced limits.
- Foreign ownership limits increased to 100% in certain sectors.
- Policy of Atmanirbhar Bharat introduced in 2020 to promote self-reliance.
External Sector Policy
- Governs transactions between domestic residents and the global economy.
- Target variables include real GDP, exports, imports, and currency value.
- Policy variables: custom duties, import restrictions, quotas, and visa regulations for foreign labor.
Balance of Payments (BoP)
- A systematic record of all external financial transactions within a defined period, often a year.
- Components include:
- Net Foreign Direct Investment: includes equity and reinvested earnings.
- Net Portfolio Investment: includes Foreign Institutional Investors (FIIs), American Depositary Receipts (ADRs), and Global Depositary Receipts (GDRs).
Basic Accounting Practices in BoP
- Consists of current and capital accounts, errors & omissions, and overall balance.
- Current Account includes merchandise trade and invisibles (services).
- Capital Account consists of foreign investment, loans, banking capital, and other capital.
Current Account Deficit
- Occurs when total inflow is less than total outflow.
- Must be financed by capital inflows to maintain currency stability.
- Increases economic vulnerability due to the volatility of capital inflows.
Goals of External Sector Policy
- Aims for economic growth, protection of the domestic economy, and currency management.
- Influences net exports (NX) and net receipts (NR) in the aggregate demand equation.
Policy Approach
- Inward looking policy: protectionist stance limiting foreign involvement.
- Outward looking policy: promotes globalization and integration in the economy.
Historical Context of External Sector Policy in India
- Pre-Reform Era (1951-1991): Inward looking policy with high tariffs and quotas, limiting foreign participation.
- Post-Reform Era (1991-2024): Outward looking policy, encouraging foreign investments by lowering tariffs and eliminating quotas and licenses.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
