External Sector of India: UPSC Previous Year Questions (Indian Economy)

Explanation

Planned expenditures are defined as the expenditure on the programmes that are mentioned in our country’s current five-year plan. For example, electricity, water, communication, transportation, agriculture and other activities, social services, etc. In simple terms, the Expenditure Report shows the expenditures made by Central Aid for state and federal needs and items under the Central Plan. In the context of the Union Budget of India, Non-Plan Expenditure refers to all expenditures of the government that are not part of the Five-Year Plans. This classification was used prior to 2017, after which the distinction between Plan and Non-Plan Expenditure was removed. Non-Plan Expenditure includes both developmental and non-developmental spending and is of-ten obligatory in nature. The major components of Non-Plan Expenditure are:

1. Defence Expenditure: This includes spending on the armed forces, procurement of defense equipment, and other related activities.

2. Interest Payments: These are payments made by the government to service its debt, both domestic and foreign.

3. Salaries and Pensions: This covers the salaries of government employees and pensions for retired personnel.

4. Subsidies: Financial support provided by the government to various sectors, including food, fertilizers, and petroleum, to keep prices low for consumers.

Explanation

The balance of payment(BoP) is a record of all monetary transactions made between the residents of one country and the rest of the world. A balance of payments deficit means the nation imports more than it exports. The current account and capital account are the two components that constitute the balance of payments.

Option (c) is correct: The Current Account of a country’s Balance of Payments (BoP) records the transactions of goods, services, income, and current transfers between residents and non-residents. It comprises the following components:

Balance of Trade (Goods): This is the difference between the value of a country’s exports and imports of tangible goods. Balance of Invisibles:

Services: Transactions involving services such as tourism, banking, and consulting. Income: Earnings from investments abroad (like interest and dividends) minus payments made to foreign investors. Foreign assets are part of the Financial Account, which records investments in financial instruments and assets between countries. SDRs are international reserve assets created by the Inter-national Monetary Fund (IMF) and are recorded in the Financial Account of the BoP.