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

Explanation

Statement 1 is incorrect: The New Development Bank (NDB) was not set up by APEC (Asia-Pacific Economic Cooperation). It was established by the BRICS nations (Brazil, Russia, India, China, and South Africa) in 2014 during the 6th BRICS Summit in Fortaleza, Brazil. APEC is a regional economic forum comprising 21 Pacific Rim member economies.

Statement 2 is correct: The headquarters of the New Devel-opment Bank is in Shanghai, China. The bank became operational in 2015 and focuses on infrastructure and sustainable development projects in BRICS and other emerging economies. The headquarters was designed with a focus on innovation, efficiency, and sustainability which reflects the bank’s commitment to sustainable development.

Explanation

‘Import cover’ refers to the duration (typically measured in months) that a country’s foreign exchange reserves can sustain its current level of imports. This metric is crucial for assessing a nation’s external vulnerability and economic stability. To calculate import cover, the total foreign exchange re-serves are divided by the average monthly import expenditure. For instance, if a country has foreign exchange reserves of $60 billion and its average monthly imports amount to $10 billion, the import cover would be 6 months. A higher import cover indicates a stronger buffer against external economic shocks, as the country can continue to fund its import needs even during periods of reduced foreign exchange inflows. Conversely, a lower import cover suggests greater vulnerability to external pressures, such as fluctuations in global commodity prices or capital outflows.

Explanation

The terms Amber Box, Blue Box, and Green Box are classifications used within the framework of the World Trade Organization (WTO) to categorize different types of agricultural subsidies based on their trade-distorting effects. Amber Box: This category includes subsidies that are considered to distort production and trade. Examples encompass measures such as price support schemes and subsidies directly related to production quantities. These are subject to reduction commitments under the WTO agreements. Blue Box: Subsidies in this box are also trade-distorting but are conditioned upon programs that limit production. For instance, direct payments under production-limiting programs fall into this category. Blue Box subsidies are exempt from reduction commitments. Green Box: This box contains subsidies that cause minimal or no trade distortion. They are typically government-funded and do not involve price support. Examples include research funding, environmental programs, and disaster relief payments. Green Box subsidies are permitted without limits under WTO rules.

Explanation

Statement 1 is correct: The International Monetary and Financial Committee (IMFC) is a key body within the IMF structure. It discusses pressing issues related to the global economy and provides guidance to the IMF on its policies and work. It plays a crucial role in shaping the IMF’s agenda and priorities.

Statement 2 is correct: The World Bank participates as an observer in IMFC meetings. This allows for coordination and collaboration between the IMF and the World Bank on issues related to international finance and development. Given the interconnectedness of their work, it’s essential for both institutions to be aligned.