India has become more integrated into the world economy through lower barriers to trade, foreign investment and the rapid growth of digital services. Indian...
Question 1 Report
India has become more integrated into the world economy through lower barriers to trade, foreign investment and the rapid growth of digital services. Indian firms sell software, clothing and pharmaceuticals abroad, while consumers buy imported machinery, fuel and electronic goods. In 2025, an Indian exporter received US dollars from overseas customers. The market exchange rate changed from ₹80 = US$1 to ₹76 = US$1 after increased demand for Indian exports. Some households welcomed cheaper imported products, but domestic firms competing with imports were concerned. The government is considering further trade agreements, although it also wants to protect employment in developing industries. Figure 1 information should be used where relevant.
(a) What is meant by globalisation? [1]
(b) Which feature of India’s economy is most likely to increase globalisation? [2]
(c) Which two benefits could Indian consumers gain from increased international trade? [2]
(d) Draw a demand and supply diagram for US dollars in India’s foreign-exchange market. Label the equilibrium exchange rate. [2]
(e) Which curve shifts when overseas buyers purchase more Indian exports using US dollars? [2]
(f) Calculate the percentage appreciation of the Indian rupee when the exchange rate changes from ₹80 = US$1 to ₹76 = US$1. [2]
(g) Which effect is the appreciation most likely to have on the price of imported US machinery in rupees? [2]
(h) Draw the change in the foreign-exchange market following higher demand for Indian exports. [3]
(i) Which group is most likely to lose from the rupee appreciation? [2]
(j) Which government policy could reduce the risks to workers in industries facing stronger import competition? [2]
Answer Details
(a) Globalisation is the increasing interconnectedness and interdependence of countries through trade, investment, migration and information flows. [1]
(b) Reducing tariffs and quotas, or improving internet and transport infrastructure, increases globalisation because it makes cross-border trade cheaper and easier. [2]
(c) Consumers can gain a greater variety of products and lower prices, as imports increase choice and competition can reduce firms’ prices. [2]
(d) The foreign-exchange market has a downward-sloping demand curve and upward-sloping supply curve. Their intersection determines the equilibrium exchange rate.
[2]
(e) There is an ambiguity in the wording. When exporters receive more US dollars and exchange them for rupees, the supply of US dollars in India shifts right. This is also consistent with the later stated appreciation from ₹80 to ₹76 per US$. The supplied key’s reference to a rightward shift of demand for US dollars is inconsistent with that mechanism. [2]
(f) Using the quoted rupee-per-dollar rate:
\[\frac{80-76}{80}\times100=5\%\]
The rupee appreciates by 5% against the US dollar. [2]
(g) Imported US machinery becomes cheaper in rupees: each US dollar costs fewer rupees, other things equal. [2]
(h) Higher export receipts increase the supply of US dollars, shifting supply from S1 to S2. The equilibrium exchange rate falls from E1 to E2, from ₹80 to ₹76 per US$, which represents a stronger rupee.
[3]
(i) Indian exporters may lose because their products become more expensive to overseas buyers in foreign-currency terms. Domestic firms competing with now-cheaper imports may also lose sales. [2]
(j) Retraining and education programmes improve affected workers’ occupational mobility, helping them move into expanding export or service industries. [2]
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