Question

Which one of the following measures is not likely to aid in improving India`s Balance of Payment position ?
1. Promotion of Import Substitution Policy
2. Devaluation of rupee
3. Imposition of higher tariff on imports
4. Levying of higher duties on exports
5. None of the above/More than one of the above

Answer 1

Correct Answer - Option 4 : Levying of higher duties on exports

The correct answer is Levying of higher duties on exports.

• Tariffs:
  • The tariff also called customs duty, a tax levied upon goods as they cross national boundaries, usually by the government of the importing country.
  • The words tariff, duty, and customs can be used interchangeably.
  • Tariffs may be levied either to raise revenue or to protect domestic industries, but a tariff designed primarily to raise revenue also may exercise a strong protective influence, while a tariff levied primarily for protection may yield revenue.
  • The Theory of International Trade (1937) suggested that the best way to distinguish between revenue duties and protective duties is to compare their effects on domestic versus foreign producers.
  • If domestically produced goods bear the same taxation as similar imported goods, or if the foreign goods subject to the duty are not produced domestically, and if there are no domestically produced substitutes toward which demand is diverted because of the tariff, then the duty is not protective.
  • A purely protective duty tends to shift production away from the export industries and into the protected domestic industries or other industries producing substitutes for which demand is increased.

• India`s Balance of Payment position 2020-21:
  • India’s current account balance (CAB) recorded a surplus of US$ 19.8 billion (3.9 per cent of GDP) in Q1 of 2020-21 on top of a surplus of US$ 0.6 billion (0.1 per cent of GDP) in the preceding quarter, i.e., Q4 of 2019-20; a deficit of US$ 15.0 billion (2.1 per cent of GDP) was recorded a year ago [i.e. Q1 of 2019-20].
  • The surplus in the current account in Q1 of 2020-21 was on account of a sharp contraction in the trade deficit to US$ 10.0 billion due to a steeper decline in merchandise imports relative to exports on a year-on-year basis.
  • Net services receipts remained stable, primarily on the back of net earnings from computer services.
  • Private transfer receipts, mainly representing remittances by Indians employed overseas, amounted to US$ 18.2 billion, a decline of 8.7 per cent from their level a year ago.
  • In the financial account, net foreign direct investment recorded an outflow of US$ 0.4 billion as against inflows of US$ 14.0 billion in Q1 of 2019-20.
  • Net foreign portfolio investment was US$ 0.6 billion as compared with US$ 4.8 billion in Q1 of 2019-20 as net purchases in the equity market were offset by net sales in the debt segment.