External Sector: FDI, FPI & BoP — Set 8

Correct Answer: B. B. A master fund to anchor capital from domestic and global investors for infrastructure in India

NIIF (National Investment and Infrastructure Fund) was established by the Government of India in 2015 as a category II Alternative Investment Fund. It functions as India's quasi-sovereign wealth fund — anchoring domestic and global institutional capital for investment in infrastructure projects in India (roads, ports, renewable energy, logistics). The Government of India owns 49% of NIIF, with the rest held by sovereign wealth funds, pension funds, and institutional investors. NIIF aims to crowd in long-term infrastructure investment.

Correct Answer: C. C. Automatic route with 100% in most manufacturing, IT, services sectors

India allows 100% FDI under the automatic route in most manufacturing sectors, IT and IT-enabled services, most services sectors, infrastructure, and others. Sectors with restrictions include: Multi-brand retail (51%, government route), Broadcasting (26% for news channels), Defence (74% automatic; above 74% government route), Insurance (74%), Banking (private sector banks: 74%). The progressive liberalization of FDI caps across sectors has been a key policy reform to attract investment.

Correct Answer: B. B. The USA's advantage from the dollar being the world's primary reserve currency

Exorbitant Privilege is a term attributed to French Finance Minister Valéry Giscard d'Estaing describing the US advantage from the dollar's status as the world's primary reserve currency. Because other countries need to hold dollars as reserves, the USA can issue debt at lower interest rates and run persistent current account deficits without immediately facing a balance of payments crisis. The global demand for dollar assets effectively finances US deficits cheaply. This privilege has been a source of international economic tension.

Correct Answer: B. B. USA is the largest single-country export destination; UAE, Netherlands, and China are other major markets

The USA is India's largest single-country export destination, with bilateral goods exports exceeding $80 billion per year. Other major export destinations include UAE (especially gems & jewellery, petroleum), China, Netherlands (EU gateway), UK, Bangladesh, Germany, and Saudi Arabia. India's export basket to the USA includes software services, pharmaceutical products, gems & jewellery, and textile/apparel. Diversifying export markets and reducing dependence on any single destination is a key export strategy objective.

Correct Answer: B. B. Earnings from services (software, tourism), remittances, and investment income

'Invisible Earnings' (or simply 'Invisibles') in India's Current Account refers to inflows from services exports (software/IT, business services, tourism, financial services), remittances from NRI workers, and net investment income. They contrast with 'visible' merchandise trade (goods). India has consistently had a large invisibles surplus — particularly from software exports ($200+ billion) and remittances ($100+ billion) — which substantially offsets the merchandise trade deficit.

Correct Answer: B. B. USA

India's services trade surplus is largest with the USA, as the US is the primary destination for Indian software exports, IT-enabled services, and business process outsourcing. Indian IT companies (TCS, Infosys, Wipro, HCL, Tech Mahindra) earn the majority of their revenues from US clients. The India-US services trade relationship is deeply embedded in global IT outsourcing chains, making the US the cornerstone of India's services trade surplus.

Correct Answer: B. B. CBIC (Central Board of Indirect Taxes and Customs)

Customs Duty in India — including Basic Customs Duty (BCD), countervailing duty, social welfare surcharge, and integrated GST (IGST) on imports — is administered by the Central Board of Indirect Taxes and Customs (CBIC) under the Ministry of Finance. Customs tariffs are governed by the Customs Act 1962 and the Customs Tariff Act 1975. Customs rates are announced in the Union Budget and modified through notifications. CBIC operates through a network of customs commissionerates at ports and airports.

Correct Answer: B. B. Withdrew from RCEP negotiations in November 2019 citing concerns about trade deficits and market access

India withdrew from RCEP negotiations in November 2019 at the ASEAN Summit in Bangkok. India's main concerns included: large trade deficit with China (and risk of Chinese goods flooding India via RCEP), inadequate market access for Indian services and skilled workers, insufficient protections for India's dairy and agriculture sectors, and lack of trade remedies. RCEP was signed in November 2020 by 15 countries (excluding India). India has kept the option open to rejoin under renegotiated terms.

Correct Answer: B. B. Ratio of a country's export prices to its import prices — measures purchasing power of exports

Terms of Trade (ToT) is the ratio of a country's export price index to its import price index. Favorable Terms of Trade (ToT > 1 or improving) means export prices are rising faster than import prices, increasing the purchasing power of exports. India's ToT is adversely affected when global oil prices rise (import prices increase) or when Indian export commodity prices fall. Deteriorating ToT means India needs to export more to import the same quantity — a real income loss for the economy.

Correct Answer: B. B. Russia and select countries, following sanctions on Russia after Ukraine conflict (2022)

Following Russia's invasion of Ukraine in 2022 and subsequent Western sanctions on Russia's SWIFT access, India expanded bilateral trade settlement in Indian Rupees with Russia. RBI authorized vostro accounts for rupee trade settlement with select countries. India-Russia trade (primarily crude oil imports) has been partially settled in rupees, dirhams, or yuan. India has also pushed for Rupee trade with SAARC countries and discussed it with Sri Lanka, Bangladesh, and others as part of broader currency internationalization efforts.