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Economic Survey 
2019-20
Volume 2 Chapter 3 
“External Sector”
Page 2


Economic Survey 
2019-20
Volume 2 Chapter 3 
“External Sector”
Balance of Payment
Current 
Account
Capital 
Account
Trade  
Balance
Invisibles 
Balance
Goods 
Import
Goods 
Export
Services  
Trade
Transfer  
Payments
Factor  
Incomes
Foreign  
Investment 
(FDI & FPI)
ECBs, 
NRI deposits 
Etc.
External  
Assistance
Page 3


Economic Survey 
2019-20
Volume 2 Chapter 3 
“External Sector”
Balance of Payment
Current 
Account
Capital 
Account
Trade  
Balance
Invisibles 
Balance
Goods 
Import
Goods 
Export
Services  
Trade
Transfer  
Payments
Factor  
Incomes
Foreign  
Investment 
(FDI & FPI)
ECBs, 
NRI deposits 
Etc.
External  
Assistance
Introduction
India’s external sector gained further stability in 2019-20 H1, witnessing 
improvement in Balance of Payment(BOP) position. 
India’s Foreign Reserves are comfortably placed at US$ 461.2 billion as on 10th 
January 2020. 
This improvement in BOP was mainly due to narrowing of Current Account 
Deficit(CAD) from 2.1% of GDP in 2018-19 to 1.5% of GDP in 2019-20 H1. 
This narrowing of CAD was mainly driven by easing crude oil prices. 
Export growth remains subdued with external demand weakened by slowdown in 
global investment, output and heightened trade tensions, notwithstanding resilient 
service exports. 
Increase in Service Imports is inevitable with increasing FDI and “make in India”. 
Our External Debt to GDP ratio is in a comfortable position as of September 
2019(20.1% of GDP). 
India’s External Liabilities(Debt+Equity) to GDP has increased at the end of June 
2019, primarily due to increase in FDI, ECBs and FPI.
Page 4


Economic Survey 
2019-20
Volume 2 Chapter 3 
“External Sector”
Balance of Payment
Current 
Account
Capital 
Account
Trade  
Balance
Invisibles 
Balance
Goods 
Import
Goods 
Export
Services  
Trade
Transfer  
Payments
Factor  
Incomes
Foreign  
Investment 
(FDI & FPI)
ECBs, 
NRI deposits 
Etc.
External  
Assistance
Introduction
India’s external sector gained further stability in 2019-20 H1, witnessing 
improvement in Balance of Payment(BOP) position. 
India’s Foreign Reserves are comfortably placed at US$ 461.2 billion as on 10th 
January 2020. 
This improvement in BOP was mainly due to narrowing of Current Account 
Deficit(CAD) from 2.1% of GDP in 2018-19 to 1.5% of GDP in 2019-20 H1. 
This narrowing of CAD was mainly driven by easing crude oil prices. 
Export growth remains subdued with external demand weakened by slowdown in 
global investment, output and heightened trade tensions, notwithstanding resilient 
service exports. 
Increase in Service Imports is inevitable with increasing FDI and “make in India”. 
Our External Debt to GDP ratio is in a comfortable position as of September 
2019(20.1% of GDP). 
India’s External Liabilities(Debt+Equity) to GDP has increased at the end of June 
2019, primarily due to increase in FDI, ECBs and FPI.
Importance of BOP Surplus
For an open and emerging economy like 
India, improvement in BOP position is 
critical. 
It ensures financing of essential imports 
like Crude oil and other such 
“manufacturing inputs” that are critical for 
providing livelihoods to crores of people 
in India. 
India has mostly remained in Current 
Account Deficit(Leakage > Injection). 
Therefore, a continuous improvement in 
our BOP is a reflection of global 
sentiment that continues to believe in 
India’s growth story. 
This sentiment is important if India wants 
to access “foreign savings” for investments 
for pushing India towards the path of 
becoming a $5 Trillion economy.
Undercurrent of Vulnerability 
Improvement in BOP for the period 
2014-19, was driven by easing crude 
prices and increased FDI inflows. 
Unlike 2014-19, improvement in 
2019-20 is driven by fall in imports 
which followed fall in GDP growth 
and some easing in crude. 
If we continue on the path of low 
growth, our future FDI & FPI inflows 
might get reduced, weakening the BOP 
position in the future. 
So, the components that have 
contributed to strengthening of BOP 
need to be further enhanced and those 
that have not will need to be re-
energised with an effective policy mix.
Page 5


Economic Survey 
2019-20
Volume 2 Chapter 3 
“External Sector”
Balance of Payment
Current 
Account
Capital 
Account
Trade  
Balance
Invisibles 
Balance
Goods 
Import
Goods 
Export
Services  
Trade
Transfer  
Payments
Factor  
Incomes
Foreign  
Investment 
(FDI & FPI)
ECBs, 
NRI deposits 
Etc.
External  
Assistance
Introduction
India’s external sector gained further stability in 2019-20 H1, witnessing 
improvement in Balance of Payment(BOP) position. 
India’s Foreign Reserves are comfortably placed at US$ 461.2 billion as on 10th 
January 2020. 
This improvement in BOP was mainly due to narrowing of Current Account 
Deficit(CAD) from 2.1% of GDP in 2018-19 to 1.5% of GDP in 2019-20 H1. 
This narrowing of CAD was mainly driven by easing crude oil prices. 
Export growth remains subdued with external demand weakened by slowdown in 
global investment, output and heightened trade tensions, notwithstanding resilient 
service exports. 
Increase in Service Imports is inevitable with increasing FDI and “make in India”. 
Our External Debt to GDP ratio is in a comfortable position as of September 
2019(20.1% of GDP). 
India’s External Liabilities(Debt+Equity) to GDP has increased at the end of June 
2019, primarily due to increase in FDI, ECBs and FPI.
Importance of BOP Surplus
For an open and emerging economy like 
India, improvement in BOP position is 
critical. 
It ensures financing of essential imports 
like Crude oil and other such 
“manufacturing inputs” that are critical for 
providing livelihoods to crores of people 
in India. 
India has mostly remained in Current 
Account Deficit(Leakage > Injection). 
Therefore, a continuous improvement in 
our BOP is a reflection of global 
sentiment that continues to believe in 
India’s growth story. 
This sentiment is important if India wants 
to access “foreign savings” for investments 
for pushing India towards the path of 
becoming a $5 Trillion economy.
Undercurrent of Vulnerability 
Improvement in BOP for the period 
2014-19, was driven by easing crude 
prices and increased FDI inflows. 
Unlike 2014-19, improvement in 
2019-20 is driven by fall in imports 
which followed fall in GDP growth 
and some easing in crude. 
If we continue on the path of low 
growth, our future FDI & FPI inflows 
might get reduced, weakening the BOP 
position in the future. 
So, the components that have 
contributed to strengthening of BOP 
need to be further enhanced and those 
that have not will need to be re-
energised with an effective policy mix.
Current Account Deficit
Current Account Deficit is generally financed by surplus in Capital Account. 
Therefore, increasing CAD as a ratio of GDP worsens the BOP by drawing on 
the Forex Reserves or building the potential to worsen it by increasing the 
external debt burden. 
But India’s CAD/GDP ratio has been significantly improving since 2014. 
The backup to CAD is the “Forex Reserves” with increase in the CAD/Forex 
ratio reflecting the decreasing strength of the backup. 
This decreasing strength depreciates the “Nominal Exchange Rate(NER)”. 
Ceteris Paribus(keeping all else equal), depreciation in NER makes imports 
costlier besides discouraging FPI, which increases the pressure on BOP to 
further worsen. 
CAD/Forex ratio increased from 10.6% in 2013-14 to 13.9% in 2018-19 and 
depreciated the rupee from Rs 60.50 to Rs 69.92.
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FAQs on PPT: Economic Survey- 2 - Crash Course for UPSC aspirants

1. What is the purpose of the Economic Survey?
Ans. The purpose of the Economic Survey is to provide an assessment of the country's economic performance and highlight key trends and challenges. It serves as a valuable resource for policymakers, economists, and researchers in formulating policies and strategies for sustainable economic growth.
2. What are the key findings of the Economic Survey?
Ans. The key findings of the Economic Survey may vary depending on the specific report and year. However, some common areas covered in the survey include GDP growth rate, inflation rate, employment trends, fiscal deficit, trade balance, sectoral performance, and policy recommendations. It provides an overall snapshot of the economy's health and identifies areas of improvement.
3. How does the Economic Survey impact policy-making?
Ans. The Economic Survey plays a significant role in shaping policy decisions. It provides policymakers with valuable insights into the current economic situation, identifies challenges, and proposes policy recommendations to address them. The survey's analysis and recommendations help policymakers in formulating strategies, designing fiscal and monetary policies, and making informed decisions to achieve sustainable economic development.
4. What are the major challenges highlighted in the Economic Survey?
Ans. The major challenges highlighted in the Economic Survey may vary based on the specific report and year. However, common challenges include unemployment, poverty, income inequality, infrastructure gaps, agricultural distress, fiscal deficit, inflation, and external factors like global economic trends. The survey provides an in-depth analysis of these challenges and suggests measures to overcome them.
5. How can individuals benefit from the information provided in the Economic Survey?
Ans. Individuals can benefit from the information provided in the Economic Survey by gaining a better understanding of the country's economic situation and its impact on their daily lives. It helps individuals make informed decisions related to investments, financial planning, career choices, and understanding the government's policies and initiatives. The survey's insights can also assist individuals in anticipating economic trends and adapting their strategies accordingly.
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