Question

Directions for questions 86 to 90: Study the tables of the Indian foreign trade given below to answer the questions.

Principal Commodities\' Import - Weight (%)
COMMODITIES	2003-04	2004-05	2005-06
Bulk imports	37.87	39.09	42.56
Pearls, precious & semi-precious stones	9.25	8.80	6.42
Machinery	10.63	10.00	10.94
Project Goods	0.49	0.54	0.57
Others	41.76	41.57	39.51
TOTAL IMPORTS	100.00	100.00	100.00
Total Imports (in Crore of Rupees)	359107.66	501064.54	630526.77

Principal Commodities\' Export - Weight (%)
COMMODITIES	2003-04	2004-05	2005-06
Plantations	0.92	0.78	0.71
Agri & allied products	8.39	7.61	7.21
Marine products	2.08	1.60	1.40
Ores & minerals	3.69	5.29	6.02
Leather & mfrs.	3.19	2.89	2.56
Gems & jewellery	16.56	17.29	15.13
Sports goods	0.15	0.12	0.13
Chemicals & related products	15.43	16.00	15.10
Engineering goods	16.41	18.41	18.66
Electronic goods	2.74	2.28	2.18
Project goods	0.09	0.06	0.13
Textiles	18.86	15.16	14.80
Handicrafts	0.70	0.43	0.40
Carpets	0.90	0.75	0.81
Cotton raw incl. waste	0.28	0.10	0.61
Petroleum products	5.54	8.57	11.21
Unclassified exports	4.07	2.66	2.94
GRAND TOTAL	100.00	100.00	100.00
Total Exports in Rupees Crore	293366.75	375339.53	454799.97
US Dollar Exchange Rate	45.9513	44.9315	44.2735

Growth of trade imbalance (exports less imports) in dollar terms in the year 2005-06 as compared to the previous year was:

• A. 39.77
• B. 41.85
• C. 91.24
• D. 95.98

Hint:

Find the trade deficit (exports minus imports) in dollar terms for both years by converting each year's rupee figures using that year's exchange rate, then find the percentage growth in the size of the deficit.

Answer 1

The Correct Option is B

Trade imbalance means exports minus imports; since India runs a deficit, this number is negative both years, and "growth" here means how much the size of that deficit increased. Work entirely in dollar terms by dividing each year's rupee value by that year's own exchange rate; do not mix exchange rates across years.

For 2004-05 (exchange rate 44.9315):

\[ \text{Exports} = \frac{375339.53}{44.9315} = 8353.5, \quad \text{Imports} = \frac{501064.54}{44.9315} = 11151.6 \]\[ \text{Deficit}_{04\text{-}05} = 11151.6 - 8353.5 = 2798.1 \text{ crore \$} \]

For 2005-06 (exchange rate 44.2735):

\[ \text{Exports} = \frac{454799.97}{44.2735} = 10272.9, \quad \text{Imports} = \frac{630526.77}{44.2735} = 14241.9 \]\[ \text{Deficit}_{05\text{-}06} = 14241.9 - 10272.9 = 3969.0 \text{ crore \$} \]

Now find the percentage rise in the deficit from one year to the next:

\[ \frac{3969.0 - 2798.1}{2798.1} \times 100 \approx 41.85\% \]

Let's summarize:

• Convert both exports and imports to dollars using each year's own exchange rate before subtracting, since using a single rate for both years would distort the comparison.
• The dollar trade deficit rose from about 2798 crore dollars to about 3969 crore dollars, a growth of about 41.85%.

So the correct answer is 41.85.