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

Step 1: Understanding the Question.
Trade imbalance is defined here as exports minus imports. Since India imports more than it exports, this number is negative, a trade deficit. We need this deficit in dollar terms for both 2004-05 and 2005-06, then the percentage growth in its size from 2004-05 to 2005-06.

Step 2: Convert exports and imports to dollars.
2004-05: Exports \(= 375339.53\) crore Rs, Imports \(= 501064.54\) crore Rs, exchange rate \(= 44.9315\) Rs/$.
\[ \text{Exports}_{\$} = \frac{375339.53}{44.9315} = 8353.5 \text{ crore \$} \]
\[ \text{Imports}_{\$} = \frac{501064.54}{44.9315} = 11151.6 \text{ crore \$} \]
\[ \text{Imbalance}_{04\text{-}05} = 8353.5 - 11151.6 = -2798.1 \text{ crore \$} \]
2005-06: Exports \(= 454799.97\) crore Rs, Imports \(= 630526.77\) crore Rs, exchange rate \(= 44.2735\) Rs/$.
\[ \text{Exports}_{\$} = \frac{454799.97}{44.2735} = 10272.9 \text{ crore \$} \]
\[ \text{Imports}_{\$} = \frac{630526.77}{44.2735} = 14241.9 \text{ crore \$} \]
\[ \text{Imbalance}_{05\text{-}06} = 10272.9 - 14241.9 = -3969.0 \text{ crore \$} \]

Step 3: Find the growth of the deficit.
The size of the deficit went from 2798.1 crore dollars to 3969.0 crore dollars. The growth is:
\[ \frac{3969.0 - 2798.1}{2798.1} \times 100 = \frac{1170.9}{2798.1} \times 100 \approx 41.85\% \]

Step 4: Why the other options fail.
Option 1 (39.77) and option 3 (91.24) come from small errors such as using the wrong year's exchange rate for one of the two values or mixing up rupee and dollar totals. Option 4 (95.98) would come from wrongly comparing rupee figures directly without dividing by the exchange rate at all. Only careful conversion of both years to dollars, followed by a straightforward percentage change, gives 41.85.

Final Answer:
The trade deficit widened by about 41.85 per cent in dollar terms in 2005-06 compared to 2004-05.
\[ \boxed{41.85} \]