UPSC Prelims Practice Questions — RBI data shows why govt. is concerned about dollars flowing out

Q1. In the context of India's Balance of Payments, the 'current account' records which one of the following?

  • A. Transactions in goods and services, primary income, and current transfers such as workers' remittances
  • B. Cross-border transactions in financial assets such as FDI, FPI and external commercial borrowings
  • C. Changes in the RBI's holdings of foreign currency assets, gold and SDRs
  • D. Capital transfers and the acquisition or disposal of non-produced, non-financial assets

Q2. With reference to the structure of India's Balance of Payments, consider the following statements: 1. The current account includes trade in goods and services as well as net invisibles such as remittances. 2. Foreign Portfolio Investment (FPI) and External Commercial Borrowings are recorded under the capital and financial account rather than the current account. 3. Changes in the country's foreign exchange reserves are recorded within the current account. Which of the statements given above is/are correct?

  1. The current account includes trade in goods and services as well as net invisibles such as remittances.
  2. Foreign Portfolio Investment (FPI) and External Commercial Borrowings are recorded under the capital and financial account rather than the current account.
  3. Changes in the country's foreign exchange reserves are recorded within the current account.
  • A. 1 only
  • B. 1 and 2 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q3. With reference to India's current account data as reported by the RBI, consider the following: 1. FY 2025-26 full-year current account deficit — about USD 25.2 billion (0.6% of GDP). 2. FY 2024-25 full-year current account deficit — about USD 22.9 billion. 3. Q2 (Jul-Sep) FY 2025-26 current account deficit — about USD 12.3 billion (1.3% of GDP). 4. Q4 (Jan-Mar) FY 2025-26 — a current account deficit of about USD 7.1 billion. Which of the above is/are correctly identified?

  1. FY 2025-26 full-year current account deficit — about USD 25.2 billion (0.6% of GDP).
  2. FY 2024-25 full-year current account deficit — about USD 22.9 billion.
  3. Q2 (Jul-Sep) FY 2025-26 current account deficit — about USD 12.3 billion (1.3% of GDP).
  4. Q4 (Jan-Mar) FY 2025-26 — a current account deficit of about USD 7.1 billion.
  • A. 1, 2 and 3
  • B. 2 and 4 only
  • C. 1 and 4 only
  • D. 1, 2, 3 and 4

Q4. Quarterly Balance of Payments statistics, including the Current Account Deficit, are compiled and released for India by which one of the following?

  • A. Reserve Bank of India
  • B. Directorate General of Commercial Intelligence and Statistics, Ministry of Commerce and Industry
  • C. National Statistics Office, Ministry of Statistics and Programme Implementation
  • D. Department of Economic Affairs, Ministry of Finance

Q5. In the composition of India's foreign exchange reserves, the term 'Reserve Tranche Position' refers to which one of the following?

  • A. The portion of a country's IMF quota that it can draw at short notice without conditions
  • B. The Special Drawing Rights allocated to India by the IMF
  • C. Gold held by the RBI as backing for the currency in circulation
  • D. Foreign currency assets invested in foreign sovereign securities

Q6. With reference to India's overall Balance of Payments in FY 2025-26, consider the following statements: 1. The overall BoP recorded a deficit of about USD 30.8 billion, compared with a deficit of about USD 4.9 billion in FY 2024-25. 2. The FY 2025-26 deficit marked a reversal from an overall BoP surplus recorded two years earlier in FY 2023-24. 3. The FY 2025-26 BoP deficit was financed by an accretion (build-up) to India's foreign exchange reserves. Which of the statements given above is/are correct?

  1. The overall BoP recorded a deficit of about USD 30.8 billion, compared with a deficit of about USD 4.9 billion in FY 2024-25.
  2. The FY 2025-26 deficit marked a reversal from an overall BoP surplus recorded two years earlier in FY 2023-24.
  3. The FY 2025-26 BoP deficit was financed by an accretion (build-up) to India's foreign exchange reserves.
  • A. 1 and 2 only
  • B. 2 and 3 only
  • C. 1 and 3 only
  • D. 1, 2 and 3

Q7. Management of India's exchange rate and market intervention that draws down foreign exchange reserves to finance a Balance of Payments deficit is carried out by which one of the following?

  • A. Reserve Bank of India
  • B. Securities and Exchange Board of India
  • C. Department of Economic Affairs, Ministry of Finance
  • D. Export-Import Bank of India

Q8. Foreign Portfolio Investment (FPI), whose net reversal pressured India's external accounts in FY 2025-26, is best described as which one of the following?

  • A. Passive investment in listed financial securities, typically a stake below 10%, without management control
  • B. Acquisition of a lasting interest of 10% or more in an enterprise, with control over its operations
  • C. Long-term external commercial borrowings raised by Indian firms in foreign markets
  • D. Cross-border remittances sent by non-resident Indians to their families

Q9. With reference to India's capital flows in FY 2025-26, consider the following statements: 1. Net portfolio investment recorded an outflow of about USD 16.7 billion, against a net inflow the previous year. 2. Unlike portfolio flows, net Foreign Direct Investment (FDI) into India remained a positive inflow in FY 2025-26. 3. FPI is generally regarded as more stable and less reversible than FDI. Which of the statements given above is/are correct?

  1. Net portfolio investment recorded an outflow of about USD 16.7 billion, against a net inflow the previous year.
  2. Unlike portfolio flows, net Foreign Direct Investment (FDI) into India remained a positive inflow in FY 2025-26.
  3. FPI is generally regarded as more stable and less reversible than FDI.
  • A. 1 and 2 only
  • B. 2 and 3 only
  • C. 1 and 3 only
  • D. 1, 2 and 3

Q10. Under the Reserve Bank of India Act, 1934, within how many months of the close of its annual accounts must the RBI transmit those accounts, together with the Central Board's report, to the Central Government?

  • A. Two months
  • B. Three months
  • C. Six months
  • D. One month

Q11. With reference to the drivers of India's widening merchandise trade deficit in FY 2025-26, consider the following: 1. A surge in gold imports. 2. A rise in the oil trade deficit despite softer average crude prices, as petroleum product exports slipped. 3. Heavy dependence on imports to meet the bulk of crude oil requirements. 4. A sharp fall in net services exports, which turned into a deficit. Which of the above is/are correctly identified?

  1. A surge in gold imports.
  2. A rise in the oil trade deficit despite softer average crude prices, as petroleum product exports slipped.
  3. Heavy dependence on imports to meet the bulk of crude oil requirements.
  4. A sharp fall in net services exports, which turned into a deficit.
  • A. 1, 2 and 3
  • B. 2 and 4 only
  • C. 1, 3 and 4
  • D. 1, 2, 3 and 4