EconomyQuick-Revision⚡ Quick Revision — Part 4: External Sector (Forex, Debt, FTAs) | International Institutions

⚡ Quick Revision — Part 4: External Sector (Forex, Debt, FTAs) | International Institutions

⚡ Quick Revision — Part 4: External Sector (Forex, Debt, FTAs) | International Institutions

🗺️ Chapter Map

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📊 Key Numbers — Flashcard

MetricValue
Forex Reserves$725 bn (5th globally)
FCA$573 bn (79%)
Gold Reserves**128bn∗∗(18128 bn** (18%) — crossed 100 bn
Gold Ranking8th globally (~880 tonnes)
Import Cover11-12 months
External Debt$746 bn
Debt-to-GDP19.2%
Non-Govt Debt78%
USD share in debt54%
INR share in debt31%
Debt Service Ratio~5-6%
Oil Import Dependence>85%
Russia Crude Share35.8%
Ethanol Blending20% (target E27 by 2030)
FTP 2023 Target$2 trillion by 2030
Remittances$130 bn (#1 globally)
FTAs since 20218
WTO Members166
IMF Members191

🏦 Forex Reserves — Structure

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ComponentWhat
FCAForeign currency assets — US bonds, deposits in foreign banks
GoldPhysical gold held by RBI (domestic + overseas vaults)
SDRIMF reserve asset. Basket: USD 43% > Euro 29% > RMB 12% > Yen 7.5% > GBP 7.4%
RTPIndia's quota portion at IMF that can be drawn without conditions

Why Countries Hold Forex

1. Defend exchange rate    4. FPI confidence
2. Finance imports         5. Buffer capital flight
3. Service external debt   6. Credit rating stability

Adequacy Tests

TestRuleIndia
Import CoverMonths of imports covered11-12 months ✅
Greenspan-GuidottiReserves ≥ short-term debt✅ Comfortable
Broad Money RatioHigher = more vulnerableModerate

Current Affairs

  • Gold crossed $100 bn — central banks diversifying from dollar
  • RBI sold ~$50 bn to stabilise rupee
  • Reserves fell from 725bn→∗∗725 bn → **693 bn** during rupee pressure

💳 External Debt — Quick Map

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Debt Service Ratio

DSR = (Principal + Interest Payments) / Export Earnings × 100
India's DSR ≈ 5-6% — comfortable (< 20% = sustainable)

Valuation Effect

  • Dollar weakens → non-USD debt appears larger in USD → valuation loss
  • Dollar strengthens → appears smaller → valuation gain
  • NOT actual new borrowing — just accounting effect

🏛️ Govt Debt (Domestic)

StructureInternal (95%) >> External
FRBM TargetDebt-to-GDP = 60% (40% Centre + 20% States)
CurrentCentre: 56%, States: 29%
Projection50±1% by March 2031
Extra BudgetaryPSU borrowings on behalf of govt — NOT in fiscal deficit. Now in Statement 27.

🌍 Trade & Export Promotion

Export Promotion Schemes

SchemeKey
FTP 2023Target: $2T exports by 2030
RoDTEPRefunds embedded taxes (electricity, mandi, fuel). Electronic scrip. WTO-compliant.
Advance AuthorisationDuty-free import of inputs for export
AEOTrusted trader — fast customs. WCO SAFE Framework.
EPCGDuty-free import of capital goods for export

🤝 FTA Architecture

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FTA vs CEPA/CECA

FTACEPA/CECA
CoveragePrimarily goodsGoods + services, investment, IPR
DepthNarrowerBroader ("FTA++")
ExampleIndia-NZ FTAIndia-UAE CEPA

India's 8 Deals Since 2021

1. Mauritius CECPA (2021) — 1st with Africa
2. UAE CEPA (2022)
3. Australia ECTA (2022)
4. EFTA TEPA (2022) — $100 bn investment commitment
5. UK CETA (2025)
6. Oman CEPA (2025)
7. New Zealand FTA (2025)
8. EU FTA (2026) — "Mother of all trade deals"

Key FTA Concepts

ConceptMeaning
Early HarvestImmediate tariff cuts on select items while full FTA negotiated
Mutual RecognitionAccept each other's standards/certifications
GSPUnilateral preference by developed → developing. Voluntary, not WTO obligation
Special 301US IP report. India on Priority Watch List

India's Regional Agreements

AgreementMembers/Key
SAFTASAARC — 8 members (since 2006)
APTAIndia, China, S. Korea, BD, SL, Laos, Mongolia
BIMSTEC7 members — Bay of Bengal (FTA ongoing)
ASEAN FTAGoods (2010), Services (2015). ASEAN = 4th largest partner
RCEPIndia walked out (2019) — Chinese goods, trade deficit
Mercosur PTABrazil, Argentina, Uruguay, Paraguay

🏢 WTO — Complete Quick Recall

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Decision Making

MethodDetail
PrimaryConsensus — no formal objection
VotingOne country = one vote. Majority. Waivers: 3/4th.
vs IMF/WBIMF/WB = weighted voting. WTO = equal votes

Key Agreements at a Glance

AgreementCoverage
GATTGoods — tariffs
GATSServices — 4 Modes
TRIPSIPR — patents, copyrights, trademarks
AoAAgriculture — subsidy boxes
SPS / TBTFood quality / Technical standards
SCMSubsidies & Countervailing

GATS — 4 Modes

ModeNameExample
1Cross-borderIndian IT → US client remotely
2Consumption abroadMedical tourism to India
3Commercial presenceForeign bank opens India branch
4Movement of personsIndian IT worker on US visa

India pushes Mode 1 & 4 | Developed push Mode 3

AoA — Subsidy Boxes

BoxStatusExample
🟢 Green✅ AllowedResearch, infrastructure, environment
🔵 Blue✅ Allowed (production-limiting)EU direct payments
🟡 Amber⚠️ Capped (de minimis 10% for dev)MSP, input subsidies
🔴 Red❌ ProhibitedExport subsidies
  • Peace Clause (Bali 2013): Can't challenge developing country breaching Amber for food security stockholding
  • India's MSP + NFSA procurement protected under Peace Clause

S&DT (Special & Differential Treatment)

  • Longer implementation periods
  • Higher subsidy thresholds (10% vs 5%)
  • GSP, duty-free for LDCs
  • India opposes graduation — self-declaration principle

Multilateral vs Plurilateral

MultilateralPlurilateral
BindingAll membersOnly signatories
ExamplesGATT, GATS, TRIPSGPA, ITA, Investment Facilitation

WTO Current Affairs

IssueStatus
E-Commerce MoratoriumIndia opposes permanent moratorium
Fisheries SubsidiesAgreement to ban IUU fishing subsidies
Appellate BodyParalysed since 2019 (US blocks judges)
MPIAInterim appeal by 55+ members

🏦 IMF & World Bank

IMF

Est.1944 (Bretton Woods)
HQWashington DC
FunctionsSurveillance, Lending, Capacity Development
VotingWeighted (based on quota)
SDR BasketUSD (43%) > EUR (29%) > RMB (12%) > JPY (7.5%) > GBP (7.4%)
ReportsWEO, Global Financial Stability Report

World Bank

WB= IBRD + IDA
WB GroupIBRD + IDA + IFC + MIGA + ICSID (5 institutions)
India ClassificationLower-middle income (1,136–1,136–4,495)
ReportsWorld Development Report, Global Economic Prospects

⚠️ Top 10 Traps — Part 4

#TrapReality
1SDR is a currencySDR = reserve asset, NOT currency
2External debt = mostly govt78% is non-government
3FDI from Singapore = real Singaporean investmentMuch is round-tripping via tax havens
4WTO Appellate Body worksParalysed since 2019
5MFN = special treatment to one nationMFN = equal treatment to ALL
6WB only gives loansWB Group = 5 institutions (IFC, MIGA, ICSID too)
7High forex = no vulnerabilityDepends on import cover, ST debt ratio, broad money
8CEPA = same as FTACEPA = broader (goods + services + investment + IPR)
9GSP is WTO obligationGSP = voluntary unilateral preference
10Valuation gain = more borrowingExchange rate effect only — no new borrowing

🔄 NRI Accounts (Recap)

NRENROFCNR(B)
CurrencyINRINRForeign
RepatriableFullyRestrictedFully
TaxFreeTaxableFree
TypeAllAllTerm Deposit only

Nostro = Our $ account in foreign bank | Vostro = Their ₹ account in Indian bank

🛢️ Energy — Rapid Fire

FactNumber
Oil import dependency>85%
Every $1 drop in oil priceImproves CAD by $1.6 bn
Russia's crude share35.8% (from <2% in 2021-22)
West Asia shareNow under 45%
Strategic Petroleum Reserve50 days (25 crude + 25 petrol/diesel)
LPG imported60%
Ethanol blending20% achieved

Last-Minute Recall Strip: Forex **725bn∗∗(5th)∣FCA∗∗79725bn** (5th) | FCA **79%** | Gold **18%** (100bn+) | Gold rank 8th (~880T) | Import cover 11-12 months | External Debt 746bn∗∗∣Debt−GDP∗∗19.2746bn** | Debt-GDP **19.2%** | Non-govt **78%** | USD **54%** | INR **31%** | DSR **5-6%** | Oil **>85%** imported | Russia **35.8%** | Ethanol **20%** | Remittance **130bn (#1) | FTP target $2T | FTAs 8 since 2021 | EU FTA 2026 | RCEP walked out 2019 | WTO 166 | Consensus + 1-country-1-vote | Appellate Body paralysed 2019 | MPIA 55+ members | GATS 4 Modes | Amber Box 10% de minimis | Peace Clause Bali 2013 | IMF 191 | SDR = 5 currencies | WB = Lower-middle income | GMCT 15% | CBAM 2026

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