By Vaishali Padake

It is a record of transactions done by resident country with the rest of world. Resident country: India

Sources of fund for nation: exports or receipts of loans and investments, are recorded as positive or surplus items.
Uses of funds: imports or to invest in foreign countries, are recorded as negative or deficit items.

BOP

Current Account

Capital Account

Reserves Gold Reserves Forex Reserves IMF Loans

Trade Invisibles Transfer / factor Payments

FDI/FIIs Portfolio Investments NRE/NRI A/cs

Current Account:That part of balance of payments recording a nations export and import of goods and services and transfer pay. Balance of trade, Net factor income, Net transfer payment.

Capital Account:That part of balance of payments that reflects net change in national ownership of assets. Capital Account = Foreign direct investment +Portfolio investment +Other investment

Trends in India's Balance of Payments

(April-March) Item / Financial Years 1. Exports 2. Imports 3. Trade Balance (1-2) 2008-09 2009-10 (R) (R) 189.0 308.5 -119.5 182.4 300.6 -118.2 (US$ billion) 2010-11 (R) 250.6 381.1 -130.4 2011-12 (PR) 309.8 499.5 -189.7

4. Invisibles, net (receipts)

5. Net Income 6. Current Account Balance (3+4) 7. Capital Account Balance* 8. Change in Reserves#
(-Indicates increase;+ indicates decrease)
*: Including errors and omissions.

98.7
-7.1 -27.9 7.8 20.1

88.1
-8 -38.1 51.6 -13.5

48.7
35.8 -46.0 62.0 -13.1

64
47.5 -78.2 67.8 12.8

#: On BOP basis (i.e., excluding valuation)

Trends in India's Balance of Payments

(April-August) Item / Financial Years 1. Exports 2. Imports 3. Trade Balance (1-2) 2011-12(PR) 158.4 247.8 -89.4 (US$ billion) 2012-13 (P) 146.5 237.2 -90.6

4. Invisibles, net (receipts)

5. Net Income 6. Current Account Balance (3+4) 7. Capital Account Balance* 8. Change in Reserves# (-Indicates increase;+ indicates decrease) *: Including errors and omissions. P: Preliminary.

30.3
22.8 -36.3 30.9 -5.4

29.7
22.4 -38.6 39.1 -0.3

#: On BOP basis (i.e., excluding valuation) R: Revised.

PR: Partially Revised.

Item / Financial Years 1. Exports 2. Imports 3. Trade Balance (1-2)

(April-December) billion)
2011-12(PR) 226.6 363.9 -137.3 214.1 169.4 -147.2

(US$

2012-13 (P)

USES OF BOP:

The BOP provides an extremely useful data for the economic analysis of the countrys weakness and strength as a partner in international trade. BOP also reveals the changes in the composition and magnitude of foreign trade. BOP also provides indications, future repercussions of countries past trade performances.

Total receipts and total payments inequality shows disequilibrium of balance of payments account

B=RP Where, B stands for balance of payments, R denotes receipts from foreigners, P stands for payments made to foreigners A country whose balance of payments is positive is called as surplus country (R>P) A country whose balance of payments is negative is called as deficit country (P>R)

Cyclical disequilibrium: It occurs on account of trade

cycles. Cyclical fluctuations in demand are caused by changes in Income, employment, output & price.

Structural disequilibrium: It is caused because of

fluctuation in the demand based on changes in tastes, fashions, habits, income, economic progress etc.

Short run disequilibrium: When a country borrows

or lends internationally, it will have short run disequilibrium, as these are usually for short period.

Long run disequilibrium: It occurs because of

accumulation of deficits or surpluses over a long period.

Causes for Indias BOP deficit

Huge development & investment programs : Due to huge development and investment programs , Import goes on increasing , requirement of capital for rapid industrialization, while exports may not be boosted up to that extent. Thus, there will be structural changes in the balance of payments and structural equilibrium will result.

Population growth: High population growth in poor countries has adverse impact on their balance of payments. Increase in the population increases the needs of these countries for imports and decreases the capacity of export. Huge external borrowing: A country will have adverse balance of payments when it borrows heavily from another country Inflation: Rapid economic development, increase in the income & price will adversely affect BOP position of a developing country like India.

The profits received from Jaguar Land Rover (JLR) in UK to Tata Motors are accounted for in Indias BoP in a. Capital Account b. Current Account c. Trade Account d. All of Above

RBI relaxed the norms that allows larger amount of External Commercial Borrowings that Indian companies can raise from abroad, the purpose is to a. Attract inflow on capital account b. Manage overall deficit on BoP c. Arrest rupee slide d. All of above

 a. b. c. d.

The USD does not depreciate despite the large current account deficit because of Large export income Large inflow of income Large inflow of capital None of above

a.

b.
c. d.

The Chinese government maintains the export competitiveness of the country by keeping the Yuan undervalued through intervention in the Forex market. The central bank Sells foreign currency Buys foreign currency Buys Yuan None of the options