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BALANCE OF

PAYMENTS
PRESENTED BY:
SIDDHANT MAHAPATRA(15202044)
SUPRATIBH MAHAPATRA(15202056)
SURAJ SINGH CHAUHAN(15202058)
SURAJIT DAS(15202059)
UMA SHANKAR MOHANTA(15202060)
VEDIKA SUDESHNA NAYAK(15202061)

Introduction

An accounting system for the external sector of the economy.

BOP keeps track of all transactions between home residents and the rest of the world.

It is a summary of the nation's financial relationship with the rest of the world. It
records the market value of goods ,services and financial assets that domestic
residents exchange with foreigners from other nations during an accounting period.

There are three balance of payments concepts-the balance of current account, the
balance of capital account and the overall balance.

Structure Of BOP

Two main components: the current account (CA), and the capital account(KA).

The current account keeps track of the international movement of goods and services,
income, and unilateral current transfers.

The capital account records capital transfers and acquisition/disposal of non-produce , nonfinancial assets .

The capital account is divided into a non-reserve financial account and an official
reserves account.

The only difference between the two components is that official reserves are the foreign
assets held by the monetary authority, while the change in foreign assets held by other
agents is recorded in the non-reserve financial account.

Official reserves are foreign assets held by the central bank. The central bank is the
monetary authority; this is the institution that manages the monetary policy of the country.

Types and causes of Bop


Disequilibrium

Cyclical disequilibrium,

Secular disequilibrium, and

Structural Disequilibrium.
MEASURES TO CORRECT BOP DISEQUILIBRIUM:

Exchange depreciation (price effect) or devaluation (by government)

Monetary Policy :Adopting a policy of deflation

Contractionary Fiscal Policy

Trade Controls

BOP CRISIS 1990-91

By the end of the 6th plan, Indias BoP deficit (Current account) rose to Rs. 11384 crore.

From 1980 to 1983, there was global recession and Indias exports suffered during this time.

During the 7th plan, between 1985-86 and 1989-90, Indias trade deficit amounted to Rs.
54, 204 Crore.

In 1991, India found itself in her worst payment crisis since 1947. The things became worse
by the 1990-91 Gulf war, which was accompanied by double digit inflation. Indias credit
rating got downgraded. The country was on the verge of defaulting on its international
commitments and was denied access to the external commercial credit markets.

The only option left to fulfil its international commitments was to borrow against the
security of Indias Gold Reserves as collateral. The immediate response of this Caretaker
government was to secure an emergency loan of $2.2 billion from the International
Monetary Fund by pledging 67 tons of Indias gold reserves as collateral. This triggered the
wave of the national sentiments against the rulers of the country. India was called a Caged
Tiger.

In 1991, the following measures were taken:

In 1991, Rupee was once again devaluated.

Due to the currency devaluation the Indian Rupee fell from 17.50 per dollar in
1991 to 45 per dollar in 1992.

The Value of Rupee was devaluated 23%.

Industries were Delicensed.

Import tariffs were lowered and import restrictions were dismantled.

Indian Economy was opened for foreign investments.

Market Determined exchange rate system was introduced. This was initiated
with LERMS.

BOP ANALYSIS

Major Items of Indias Balance of Payment

Apr-mar (20132014)

Apr-mar(20142015)

INCREASE OR
(DECREASE)

% change

-32.4

-27.5

4.9

-17.8

-147.6

-144.2

3.4

-2.35

POL

-101.6

-83.1

18.5

-22.26

2. Service

73.0

75.7

2.7

3.5

3. Primary Income

-23.0

-25.0

-8

4. Secondary Income

65.3

66.0

0.7

1.06

A.

33.2

28.1

-5.1

-18.14

Of which :

Change in reserves(Increase(-)/Decrease(+))

-15.5

-61.4

-45.9

74.75

A.

-0.9

-0.6

0.3

-50

A.

Current account

1.Goods
Of which:

Capital Account and Financial Account

Errors and Omissions (-) (A+B)

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