BALANCE OF PAYMENT

POSITION OF INDIA

PROJECT ON INTERNATIONAL
FINANCE

Presented by: Vinod Surendran

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 Table of Contents
SR.NO Particulars
1. Definition & Relevance
2. Components of BOP
3. The BOP Crisis & The New Economic
Policy
4. Highlights of India’s International Trade
5. India’s BOP Position
6. Foreign Trade Policy
7. Measures to make BOP favorable

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 Definition & Relevance
 The balance of payments of a country is a
systematic record of all economic transactions
between the residents of a country and the rest of
the world. It presents a classified record of all
receipts on account of goods exported, services
rendered and capital received by residents and
payments made by them on account of goods
imported and services received and capital
transferred to non-residents or foreigners.
– Reserve Bank of India
–

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 Components of BOP
• Current Account
– Merchandise Trade balance
– Services balance
– Unilateral Transfer balance
• Capital Account
– Direct Investments
– Portfolio Investments
– Other Capital flows
• The Official Reserve Account
– IMF
– SDR Allocation (Special Deposit Receipts)
– Reserves and Monetary Gold
• Errors & Omissions
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 The BOP Crisis & The New
Economic Policy
BOP Crisis:
• In Jan 16, 1991 reserves fell to USD 0.91 bn
sufficient to meet 15 days worth of imports.
• Current a/c deficit shot up to 3.4%
• Initial Response was to levy cash margin on
Imports up to 200%
• India had to pledge 49 tonnes of gold
New Economic Policy 1991:

• Devaluation of Rupees
• Import restrictions on certain goods were
eliminated
• FII portfolio investments were permitted & FDI
rules were relaxed.
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 Highlights of India’s
International Trade
• Indias merchandise
CAG R 24 2 1 .8 2 2 .9 1 Trade Turnover
% % %
increased from INR
7.6 lac cr in 2001-
02 to INR 32.22 lac
cr in 2008 – 09
• Indias exports
increased from INR
3.88 lac cr in 2001-
03 to 15.45 lac cr in
2008 – 09
• IndiasImports
increased from INR
3.72 Lac cr in
2001- 03 to INR
16.77 lac cr in 2008
– 09
• Share in world 6
 Major Trading Partners
Top 5 Countries of Export
Rank Country Apr-Mar  2008 Apr-Mar  2009(P) %Growth %Share

1 U ARAB EMTS 62,915.03 110,021.10 74.87 13.1

2 USA 83,388.07 95,750.58 14.83 11.4

3 CHINA P RP 43,597.41 42,661.32 -2.15 5.08

4 SINGAPORE 29,662.23 37,746.56 27.25 4.49

5 HONG KONG 25,385.25 30,639.15 20.7 3.65

Total 655,863.50 839,977.94 28.07 100

Top 5 Countries of Import

Rank Country Apr-Mar  2008 Apr-Mar  2009(P) %Growth %Share

1 CHINA P RP 109,116.11 144,114.78 32.07 10.75

2 U ARAB EMTS 54,233.20 94,768.04 74.74 7.07

3 SAUDI ARAB 78,110.31 89,654.59 14.78 6.69

4 USA 84,625.13 83,537.24 -1.29 6.23

5 IRAN 43,945.93 55,806.96 26.99 4.16

Total 1,012,311.75 1,340,587.75 32.43 100

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 India’s BOP position in
2008-09
•
• Due to the synchronized global recession, exports have declined since October
2008 for eight successive months. Imports growth also witnessed a
deceleration during October-November 2008, before turning negative
thereafter. The merchandise trade deficit declined during 2009-10 (April-
May) over the corresponding period of the previous year, reflecting the
sharper decline in the imports in relation to exports.

•
• The lower trade deficit emanating from moderation in oil prices resulted in a
turnaround in the current account to a modest surplus during the fourth
quarter of 2008-09, after recording deficits for seven consecutive quarters.

•
• For the year as a whole, net capital flows fell from US$ 108.0 billion in 2007-08
to US$ 9.1 billion in 2008-09, while the current account deficit widened from
1.5 per cent of GDP to 2.6 per cent of GDP during the same period.

•
• External shock on India’s BoP was managed with a loss of reserves of only US$
20.1 billion (net of valuation) without resorting to any extraordinary 8
measures.
 Exports
Export Growth February March April May June July

Y -o -Y -21.7 -33.3 -33.2 -29.2 -21.7 -28.4

Q -o -Q -13.9 -20.1 -27.7 -44.8 -14.8 10.1

Decline of Exports in the following sector:

Handicraft & Handlooms 64%
Textile 13%
Gems & Jewellery 21%
Chemicals 21%
Increase in Exports
Fertilisers 35 %
Aircraft, space crafts & parts: 82%
Arms & Ammunitions: 115%
Tobacco & substitutes: 24%
Foreign Trade Policy sets Export Target at $200 bn for
2010-11
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 Imports
Import Growth February March April May June July

Y-o-Y -23.3 -34 -36.6 -39.2 -29.3 -37.1

Q-o-Q -56.3 -49.2 -50.4 -58.3 -36.9 -12.9

India’s Import fell 37% in July to USD19.62bn

resulting in reducing trade deficits

The decline in Non-oil imports is about 24.5%
which includes fall of imports in Machinery &
Capital goods

Oil imports fell 55.5% to USD 5.6 bn due to fall
in crude prices

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 Trade Deficits
• USD 15 bn in April – June 09
• USD 28.6 bn in April – June 08
• Tr. Deficit for 1st 9 months is $ 93.8
billion
 (74% higher than S 58.98 b in the
year ago period )


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 India’s BOP position
• Is India facing a BOP Crisis?
• Forex Reserves of USD 276 Bn


• Problem Areas:
– Widening Trade deficits: INDIA’s trade
deficit on a balance of payments (BoP)
basis has widened significantly by $ 26
billion to $ 69.2 billion in the first six
months (April-September) of fiscal year*
2008-09 from $ 43.2 billion in the
comparable period in previous fiscal.
– higher current account deficit ($ 22.3
billion)  due to high trade deficit
– volatile and relatively lower net capital
inflows ($ 19.9 billion) than April- 12
 Foreign trade Policy
• Exports Target at USD 200 bn by 2010-
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• Tax holiday extended for one more year
for EOU
• Focused Market Schemes to be
extended to 26 new countries
including 16 Latin American & 10 in
Asia-Ocenia
• Duty free imports for capital goods in
select industries like engineering,
chemicals, electronics, textiles, 13
 Measures to make BOP
favourable
• Government sops for labour intensive
goods like textiles, Handicrafts,
gems & jwellery
• Lower transactions costs
• Speedy set up of Export oriented
units & SEZ.
• Lower transaction costs & reduced
paper work

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THANK YOU

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