ARTICLES ON BALANCE OF PAYMENT

The recent articles which is published in THE HINDU and ECONOMIC

TIMES about the balance of payment is The Reserve Bank of India warned on
Tuesday that volatile capital flows threatened to increase pressure on the country’s
balance of payments, which is recording the widest current account deficit among
large emerging economies.

Analysts identify the current account deficit which will put downward pressure
on the Indian rupee alongside double-digit inflation as the biggest challenges for
the Indian economy.

India’s current account deficit has widened in the past year as fast-paced
economic growth drives greater demand for imported goods, and is forecast to
grow larger in the year ahead.

The Reserve Bank of India said on Tuesday that the country’s current account
deficit had grown to 2.9 per cent in 2009-10 from 2.4 per cent in the previous year.
One reason, the central bank said, for the deterioration in the balance of payments
was a decline in an “invisibles surplus”, caused in part by falling revenues to
India’s prized outsourcing sector. Subir Gokarn, the deputy governor of the RBI,
said he detected risks with global capital flow volatility. He said there had been “a
sharp change in the global scenario with a flight to safety [resulting in capital]
exiting from Indian and other emerging markets, which put some pressure on what
looks like a comfortable balance of payments.”

Although India is unlikely to face difficulties financing its current account

deficit provided one of the fastest growing large economies attracts capital inflows,
some senior policymakers have urged action to reduce the deficit.

They warn that although the Indian economy is forecast to grow at 8.5 per cent
this year, it is imprudent to widen the deficit at a time of global economic
uncertainty and financial volatility. “A higher current account deficit led to a
stronger absorption of foreign capital,” the RBI acknowledged in a statement at the
release of its annual report for 2009-10.

India’s own foreign exchange reserves, a cushion against volatile capital flows,
have fallen over recent months to $278bn from a high of $315bn in May
2008.Shyamala Gopinath, another RBI deputy governor, told the Financial Times
the central bank did not have a target “comfort range” for its foreign reserves but
that an internationally recognised yardstick was one year’s cover for imports.

A current account deficit occurs when a country's imports of goods and services
is greater than its exports of goods, services and transfers. A wide current account
deficit is not necessarily a bad thing for a fast-growing developing country
provided that it is attempting to boost local productivity and exports.

Brazil’s current account deficit has widened to $43.76bn, or about 2.24 per cent
of GDP, on strong demand for imports. Data released this week showed that Brazil
had also suffered a steep fall in foreign exchange inflows.China and Russia, by
comparison, both run current account surpluses.

The RBI on Tuesday issued a cautious assessment of the global economy,

observing that uncertainty had deepened in the US and Europe in recent months
and the economic recovery was in danger of faltering.

Many find it amusing that it took officials 11 months to declare a “recession” in

the United States. Yet, it took more than 20 years to recognise worse. When does a
crisis become “A Crisis?” First came ‘the boom’ exploding debt, crazy credit,
insane speculation, a finance sector gone berserk even as manufacturing declined.

But some of those problems, certainly ruin of industry and job losses, have
plagued other, poorer nations for close to two decades now. Some even saw doom
without a boom. When imposed on those societies we didn’t call these problems a
crisis. We called them “reforms.” Or the painful fallout of necessary “adjustment.”
When they come home to roost in Wall Street, we call it a crisis. Simply put, a
crisis becomes a crisis when it hits the suits. Even within those nations on which it
was imposed, the poor and hungry were devastated years before the well-off found
crisis on their menu. Indeed, the predicament faced by poor people translated into
the “success stories” of those elites.

Within India, rural despair and breakdown meant little. Crisis is when the
Sensex tanks. It took over a decade of intense misery before a Prime Minister
figured out there were problems in the countryside. Which he then tried tackling
with makeshift “relief packages” thinly spread out across hundreds of millions of
people. (Even the much-needed NREGA only happened due to arm-twisting
allies.) But much larger “stimulus” packages, aimed mostly at the narrow corporate
world, happen in a jiffy. And Finance Ministers are quick to descend on Dalal
Street within hours of a hiccup on the Sensex. They do so, as the media tenderly
put it, “to soothe the market’s nerves.” Recall the short eight-day session of
Parliament in 2004? It followed the historic elections of that year. The then
Finance Minister was absent on the first day of that session. He was consoling the
distraught millionaires of Dalal Street. The delicate sentiment of the Market had
been wounded by the democratic sentiments of the Indian voter.

Since the meltdown began in September, the U.S. economy has seen the loss,
on average, of around 17,000 jobs a day. Move the baseline to November 1 and job
losses have averaged more than 19,000 a day. And the trend is getting worse. Close
to 2.6 million jobs have been lost since just September. Over 1.7 million of those
have vanished over the last three months. January saw the loss, on average, of
more than 800 jobs every hour.

India must concentrate on accelerated growth in agriculture, IT, services and

exports during the next two decades, and make efforts fiscally to raise the rate
of investment to start closing the gap with China.
 ASSIGNMENT

ON

INTERNATIONAL FINANCIAL MANAGEMENT

SUBMITTED BY

GEETHA.S

II MBA IT