India has the highest amount of foreign debt in the form of
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1 mark, −0.333Indian EconomyIndia's external sector and trade policyThe balance of payments and current accountEasyabout 1 min
GATE 2021 Question 20: India's external sector and trade policy
Answer and worked solution
Answer: (B)
Commercial Borrowings have consistently been the largest single component of India's external debt for many years, typically accounting for roughly 35-40% of the total, followed by NRI deposits (around 20-25%) and short-term trade credit. This ranking has held true consistently across RBI's periodic external debt status reports both before and after this exam's 2021 vintage.
Loans from the IMF and from the Bank of England are both comparatively minor components of India's total external debt.
Therefore the answer is (B) Commercial Borrowings.
The trap: (A) Non Resident Indian (NRI) Deposits
NRI deposits are a well-known and often-discussed component of India's external debt (frequently covered in Indian financial news), which can make them feel like the 'obvious' largest component to someone recalling general familiarity rather than the specific ranking — but commercial borrowings have consistently outranked them by a meaningful margin across the years this data has been tracked.
India's external sector and trade policy has come up 25 times in 6 exams since 2011.
What this question tests
This question is on The balance of payments and current account, part of India's external sector and trade policy in Indian Economy.
India's external accounts and the deficits that matter.
TestStop has 8 past-paper questions on this subtopic.
Question from the GATE 2021 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.