International Economics

📘 NDA Economics · ECN07

NDA-level international economics is basic: understand BoP accounts, fixed vs flexible exchange rate, and the WTO’s role. No deep analysis required.

📌 NDA Pattern: Current vs Capital Account • Devaluation (fixed) vs Depreciation (flexible) • WTO basic definition • FDI vs FPI • Trade deficit concept

1. Balance of Payments

Balance of Payments (BoP): Systematic record of all economic transactions between a country and the rest of the world in a given year. Always balances.
Current Account: Trade in goods (merchandise) + services + factor income + transfer payments (remittances). Remittances = Current Account.
Capital Account: Investment flows — FDI (Foreign Direct Investment; managerial control; long-term) + FPI (Foreign Portfolio Investment; passive; short-term “hot money”) + loans.
Trade Deficit = Imports > Exports. India typically has a trade deficit (imports crude oil, gold, electronics).

2. Exchange Rate & WTO

Fixed Rate → Devaluation/Revaluation: Government decision. India devalued rupee in 1966 and 1991.
Flexible Rate → Depreciation/Appreciation: Market forces determine. India = managed float (market + RBI intervention).
WTO (World Trade Organisation): Established 1 January 1995 (replaced GATT 1947). HQ: Geneva. 164 members. Regulates international trade. DG: Ngozi Okonjo-Iweala.
TRIPS: Trade-Related Intellectual Property Rights (20-year patent protection).
TRIMS: Trade-Related Investment Measures (no local content mandates on FDI).

📝 NDA PYQInternational Economics — NDA Pattern

Q1. When a country officially reduces its currency value against a fixed exchange rate, it is called: (NDA I 2023)

(a) Depreciation (b) Appreciation (c) Devaluation (d) Inflation

Answer: (c) Devaluation
Devaluation = official government decision to reduce currency value in a fixed exchange rate system. Depreciation = market-driven fall in a flexible system. India devalued the rupee officially in 1966 (∼36%) and 1991 (∼22–25%). Today India operates managed float, so the rupee “depreciates” not “devalues.”

Q2. WTO replaced which organisation in 1995? (NDA II 2022)

(a) UNCTAD (b) GATT (c) IMF (d) World Bank

Answer: (b) GATT (General Agreement on Tariffs and Trade)
GATT (1947) focused on reducing tariffs on goods. WTO (1995) expanded scope to services (GATS), intellectual property (TRIPS), investment (TRIMS). WTO has a formal dispute settlement mechanism. HQ Geneva. 164 members.

📝 Rapid Revision — ECN07

🌎 BoP

Current Account = goods + services + transfers
Capital Account = FDI + FPI + loans
FDI = managerial control; FPI = passive hot money
Remittances = Current Account (transfer payments)

📈 Exchange + WTO

Fixed → Devaluation (govt); Flexible → Depreciation (market)
India = managed float
WTO est. 1995; replaced GATT 1947; HQ Geneva
TRIPS = IP rights; TRIMS = investment measures

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