Geography Answer Writing Practice 2018 - Week 6 - Question 4
90 Days Geography Answer Writing Practice Question 2 for 19-Dec-2018
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19-Dec-2018 - Question 2
Account for the persisting negative trade balance of India. 200 words (2018)
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Trade balance refers to the difference of exports over imports for a country . It is negative if imports exceed exports thus pulling the current account into the negative zone. India’s trade balance has been negative persistently due to the following reasons:
- Import of oil and natural gas : India imports 80% of its oil and natural gas. This figure has been increasing due to the increasing dependence on fossil fuels for growth.
- Increasing demand for vegetable oil : Though India is the largest producer of vegetable oil, it still has a large dependence on imports. Sustained increase in consumption against stagnating production widened India's import dependence to 67 percent for 2016-17, with an estimated demand of 24.5 mt.
- Imports of gold and other precious metals to fuel the cultural demands.
- Imports of capital goods and machinery due to lack of effective manufacturing processes in the country.
- Low value addition in global value chains as manufacturing industry in India does not add significantly to the the manufactured product and is limited to either after sales service or joining designed parts outside India.
- Poor competitiveness of exports due to ineffective policy measures like inverted duty structures, delay in processing of benefits to the exporters.
- Poor connectivity from the manufacturing zones to the ports increasing cost of logistics due to fragmented connectivity. The logistics cost stands at 14% of the GDP which is nearly double that of other competing countries.
- Poor performance of MSME sector due to policy ineffectiveness leading to slower growth.
Thus, India’s persistent negative trade balance is a result of culmination of several shortcomings in policy as well as lack of resources. It leads to other consequences such as - weakening of home currency adding to the import bill, need for foreign investments to bridge the deficit and loss of jobs in the face of rising competitiveness.
Thus, there is an urgent need to redesign processes and ensure convergence of programmes such as Make in India, Skill India , FAME India, Sagarmala and other such policy efforts to improve India’s trade balance.