External sector & international economic bodies

Answer: (d) a credit system granted by IMF to its members

The reserve tranche (historically the 'gold tranche', because that share of the quota was once paid in gold) is the part of a member's IMF quota paid in reserve assets. A member can draw on it from the IMF when needed, so it counts in India's foreign exchange reserves as the Reserve Tranche Position.

• ✓ (d) Each IMF member pays its quota partly in SDRs or usable currencies and partly in its own currency; the gap between the quota and the IMF's holdings of its currency is its reserve tranche position, which it can draw on.
• ✗ (a) The World Bank lends for development projects; quotas and tranches belong to the IMF's financing structure.
• ✗ (c) The WTO is a trade-rules body and does not extend credit to its members.

Remember · India's forex reserves = foreign currency assets + gold + SDRs + Reserve Tranche Position (RTP) in the IMF. Reserve tranche = quota share paid in reserve assets.

Question and answer: UPSC's official GS Paper I (2020, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (a) 1 only

UPSC's key accepts only staying away from short-term foreign borrowing: such loans must be repaid or rolled over within a year, and lenders stop rolling them over when panic hits. UPSC's key does not count statements 2 and 3 as protection.

• ✓ 1. Short-term debt (original maturity of one year or less) is a key indicator of debt sustainability in volatile conditions. In 2008-09 short-term trade credit reversed to a net outflow, so low dependence on such funds leaves less to be pulled out.
• ✗ 2. UPSC's official key does not count this as protection; we could not confirm the reasoning from an official source, so we do not explain it here. The Economic Survey records that banking capital, including NRI deposits, was among the flows that turned into net outflows in 2008-09.
• ✗ 3. UPSC's official key does not count this as protection; we could not confirm the reasoning from an official source, so we do not explain it here. The Economic Survey records that reversal of capital flows was the main route through which the 2008 shock reached emerging economies, with portfolio outflows alone at US$ 14 billion.

Remember · In a global crisis, short-term foreign money runs first. Less short-term borrowing leaves less to be pulled out.

Question and answer: UPSC's official GS Paper I (2020, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 1 Oct 2026 (how we verify). Permalink · Report an error

Answer: (b) It is a largely non-debt creating capital flow.

FDI is largely a non-debt-creating capital flow: the foreign investor buys ownership (equity) in an Indian company, so India owes no loan repayment or interest, unlike a borrowing. The other options describe listed-company portfolio investment, loans, or investment in government bonds.

• ✗ (a) FDI is investment through capital instruments in an unlisted Indian company, or 10 per cent or more of the post-issue paid-up equity of a listed company. It is not limited to listed companies.
• ✓ (b) Foreign investment (FDI and portfolio investment) is a non-debt liability in India's balance of payments, while loans, trade credit and NRI deposits are debt liabilities.
• ✗ (c) Debt-servicing means repaying interest and principal on a loan. FDI brings ownership capital and involves no such obligation; that is the mark of external borrowing.
• ✗ (d) Investment by foreign institutional investors in government securities is portfolio investment, not FDI. FDI carries a 'lasting interest' in an enterprise, unlike portfolio investment.

Remember · FDI = ownership stake (equity), non-debt creating, with a lasting interest. Loans, trade credit and NRI deposits are debt.

📘 Read it in NCERT: Class 12 Introductory Macroeconomics, Ch 6 (practise this chapter)

Question and answer: UPSC's official GS Paper I (2020, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

UPSC dropped this question from evaluation in its final answer key.

UPSC dropped this question from evaluation in its final answer key. The facts behind it: India normally imports more goods than it exports (a merchandise trade deficit), earns more from services than it pays for them (a services surplus led by software), and usually runs a current account deficit overall, though that turned into a surplus in the pandemic period of 2020.

• ✓ 1. India has a long-standing merchandise trade deficit: goods imports exceed goods exports (Economic Survey 2019-20 puts it at about 6 per cent of GDP in 2014-19 and the largest component of the current account deficit).
• • 2. UPSC dropped this question; we could not confirm this claim from an official source, so we do not explain it here.
• ✓ 3. India runs a net services surplus, which Economic Survey 2019-20 says has been significantly financing the merchandise trade deficit; software services make up the bulk of service exports (around 40-45 per cent).
• • 4. A current account deficit is India's usual position, but the current account moved to a small surplus in Q4 2019-20 and a larger one in H1 2020-21, so 'at present' was open to dispute in 2020.

Remember · India: goods trade in deficit, services trade in surplus, current account normally in deficit but in surplus during the 2020 pandemic slump.

Question and answer: UPSC's official GS Paper I (2020, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 1 Oct 2026 (how we verify). Permalink · Report an error

Answer: (c) 1 and 3 only

The WTO's TRIMs Agreement bans investment conditions that break the GATT rules on national treatment and quantitative restrictions, but it covers only trade in goods and does not regulate foreign investment as such. So statements 1 and 3 are correct and 2 is wrong.

• ✓ 1. Members may not apply any TRIM inconsistent with GATT Articles III or XI. The Agreement's illustrative list includes rules that limit an enterprise's imports of inputs, so import restrictions on investors are prohibited.
• ✗ 2. Article 1 says the Agreement applies to investment measures related to trade in goods only; services are not covered.
• ✓ 3. The WTO states that, being based on GATT disciplines on trade in goods, the Agreement is not concerned with the regulation of foreign investment.

Remember · TRIMs (Uruguay Round) cover only goods-related investment measures such as local-content and trade-balancing rules; they do not regulate foreign investment itself.

Question and answer: UPSC's official GS Paper I (2020, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error

Answer: (b) 2 only

Only statement 2 is correct: textiles are among the main traded sectors between India and Bangladesh. India-Sri Lanka trade has gone up and down rather than rising every year, and Bangladesh, not Nepal, is India's biggest trading partner in South Asia.

• ✗ 1. Sri Lanka's trade data show total India-Sri Lanka merchandise trade of US$ 4,648 million in 2014, 4,911 in 2015, then a fall to 4,369 in 2016, a rise to 5,218 in 2017 and falls to 5,008 in 2018 and 4,667 in 2019. It did not rise consistently.
• ✓ 2. In a Lok Sabha reply the Government of India listed Textiles first among the most traded sectors between India and Bangladesh; Bangladesh's readymade garment exports to India have also grown since 2011.
• ✗ 3. India's High Commission in Dhaka states that Bangladesh is India's biggest trading partner in South Asia, so Nepal is not the largest.

Remember · Bangladesh is India's biggest trading partner in South Asia. Textiles are a major traded sector with Bangladesh, while India-Sri Lanka trade rises and falls from year to year.

Question and answer: UPSC's official GS Paper I (2020, Series A) — paper ↗ · answer key ↗. Explanation: Minimalist IAS, checked 30 Sept 2026 (how we verify). Permalink · Report an error