UPSC Prelims Practice Questions — Exports touch record high as diversification pays off in October

Q1. In a given month, a country's merchandise exports are $50 billion and its merchandise imports are $90 billion. In the same month a year later, goods exports and goods imports are both higher by the same absolute amount of $5 billion. Consider the following statements: Which of the statements given above is/are correct?

  1. The year-on-year growth rate of merchandise exports will be higher than that of merchandise imports.
  2. The merchandise trade deficit will be narrower than it was a year earlier.
  3. If the country's services trade surplus widens over the same year, its overall trade deficit can narrow even though its merchandise trade deficit does not.
  • A. 1 only
  • B. 2 and 3 only
  • C. 1, 2 and 3
  • D. 1 and 3 only

Q2. The Reserve Bank of India's balance of payments data for January–March 2026 (Q4 of 2025-26) show a merchandise trade deficit of US$ 83.4 billion, net services receipts of US$ 60.4 billion, private transfer receipts of US$ 43.5 billion and a current account surplus of US$ 7.1 billion. Consider the following: Which of the above inferences can be validly drawn from these data alone?

  1. India's foreign exchange reserves increased during the quarter as a result of the current account surplus.
  2. A large merchandise trade deficit is compatible with a current account surplus in the same period.
  3. Net primary income, such as interest and dividends, was a net inflow for India during the quarter.
  4. Net services receipts and private transfer receipts together more than covered the merchandise trade deficit.
  • A. 2 and 4 only
  • B. 2, 3 and 4 only
  • C. 1 and 2 only
  • D. 1, 2 and 4 only

Q3. A country's merchandise exports in October were $40 billion in Year 0. A tariff shock cut them to $30 billion in October of Year 1, and they reached $45 billion in October of Year 2. Consider the following statements: Which of the statements given above is/are correct?

  1. The year-on-year growth of exports in October of Year 2 is 50%.
  2. Exports in October of Year 2 were only 12.5% higher than in October of Year 0, so much of the year-on-year growth reflects recovery from a depressed base.
  3. If exports in October of Year 3 are again $45 billion, year-on-year growth for that month will be zero even though the level equals the highest recorded for October.
  • A. 1 and 2 only
  • B. 1, 2 and 3
  • C. 2 and 3 only
  • D. 1 only

Q4. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. A month can record a high year-on-year growth rate in exports even if the month-on-month change in exports in that month is negligible.
  2. The year-on-year growth rate combines the current month's momentum with a base effect arising from the month-on-month change in the same month a year earlier.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q5. A large part of the rise in a country's export earnings in a month comes from refined petroleum products. With reference to this, consider the following statements: Which of the statements given above is/are correct?

  1. A rise in the dollar value of petroleum product exports shows that a larger quantity of these products was shipped.
  2. If international fuel prices fall sharply, the value of petroleum product exports can decline even when the quantity shipped increases.
  3. Concentration of export earnings in petroleum products makes the headline export value sensitive to swings in global crude oil prices.
  • A. 2 only
  • B. 1 and 2 only
  • C. 2 and 3 only
  • D. 1, 2 and 3

Q6. With reference to export diversification, consider the following statements: Which of the statements given above is/are correct?

  1. Geographic diversification reduces an exporter's exposure to a tariff increase or a demand slump in any one importing country.
  2. Product diversification reduces the exposure of export earnings to a price collapse in any single commodity.
  3. An economy whose exports reach many destinations is thereby protected against a fall in the global price of its main export commodity.
  • A. 1 and 2 only
  • B. 1, 2 and 3
  • C. 1 only
  • D. 2 and 3 only

Q7. Consider the following statements: Which of the following is correct in respect of the above statements?

  1. In 2023-24, India's current account deficit was smaller than its combined deficit on trade in goods and services.
  2. Private transfer receipts, which mainly represent remittances by Indians employed abroad, are recorded under primary income in the current account.
  • A. Both Statement-I and Statement-II are correct and Statement-II explains Statement-I
  • B. Both Statement-I and Statement-II are correct, but Statement-II does not explain Statement-I
  • C. Statement-I is correct, but Statement-II is incorrect
  • D. Statement-I is incorrect, but Statement-II is correct

Q8. Other things remaining the same, which one of the following would directly narrow India's current account deficit?

  • A. A rise in dollar purchases by the RBI that add to forex reserves
  • B. A rise in external commercial borrowings raised by Indian companies
  • C. A rise in foreign portfolio investment inflows into Indian equities
  • D. A rise in private transfer receipts from Indians working abroad