Transcript balance of payments

BALANCE OF PAYMENTS
GROUP MEMBERS
Priyanka Naik
 Roshan Namboodiri
 Virat Panchal
 Nikhil Pethkar
 Munal Rakhangi
 Kiran Rawat

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BALANCE OF PAYMENT
Definition

“Systematic Record Of Economic transactions
between Residents of a country and Rest of the
World.”
IMPORTANCE OF BALANCE
OF PAYMENTS (BOP)

Demand and Supply of currency

Confirm trend in economy’s international trade

Confirms exchange rate of the currency

Indicate policy shift
THE GENERAL RULE IN BOP
ACCOUNTING

Foreign currency earned – Credited

Foreign currency expended - Debited
COMPONENTS OF A BOP
STATEMENT
Current
Account
Capital
Account
Change in reserve
fund and monetary
gold
Balance
Of
Payment
CURRENT ACCOUNT AND ITS
COMPONENTS
Imports
Exports
Current
Account
Trade
Balance
Invisibles
CAPITAL ACCOUNT
THE RESERVE ACCOUNT
 Three
accounts: IMF, SDR, & Reserve and
Monetary Gold
 The
IMF account contains purchases
(credits) and re-purchase (debits) from
International Monetary Fund
 Special
Drawing Rights (SDRs) are a
reserve asset created by IMF and
allocated from time to time to member
countries
TRENDS IN INDIA’S
BALANCE OF PAYMENTS



Also used to settle international payments
between monetary authorities of two different
countries
A country, like India, which is on the path of
development generally, experiences a deficit
balance of payments situation.
This is because such a country requires imported
machines, technology and capital equipments in
order to successfully launch and carry out the
programme of industrialization
FIRST PLAN

Favorable monsoon

Rapid Industrialization

Balance of payment during the first plan- Rs. 42 crores
SECOND PLAN
Heavy deficit in the balance of trade - Rs. 2339
crores
 Increase in industrial imports


Decision to restrict imports and expand exports
THIRD PLAN


Heavy amount had to be paid by India in the form of
interest payments on loans
Improved exports.
FOURTH PLAN


The main objectives of the fourth plan was selfreliance
The government restricted imports and succeeded in
expanding exports.
FIFTH PLAN
 Increase
in the exports surplus on account of
invisibles
 From
1979-80 onwards, India started
experiencing very adverse balance of payments
 Colossal
deficit in the current account was met
through withdrawals and borrowings from
IMF
SIXTH PLAN

The annual average current account deficit - Rs.2,600
crores

The trade deficit was 3.3 per cent of GDP

Current account deficit was 1.4 per cent of GDP
SEVENTH PLAN
 Average
volume growth exceeded 7 per cent
 The
net invisible earnings in financing trade
deficit
63%
Sixth Plan
29.5 %
Seventh Plan
 The
average current account deficit increased
to 2.4 percent of GDP
DEVELOPMENT SINCE 1993-2000



In 1993-94, India became more open, market driven by
liberalized economy
1997-2000,export earnings, accounted for nearly 90 per
cent of the value of imports
Exports recorded a growth of 20 per cent in dollar
terms
CONTD….

The surplus on the invisible account doubled

Foreign currency reserves
$1,205 million
$19,386 million
1990
1994
CAUSES FOR BOP DIS-EQUILIBRIUM

Economic factors

Political factors

Sociological factors
INDIA'S FOREIGN TRADE: 2008-09
(IN US$ MILLION)
In Rs.
In $Million Crore
Exports
2007-2008
99912
404417
2008-2009
119301
523879
19.4
29.5
2007-2008
153109
620050
2008-2009
203642
897246
33
44.7
2007-2008
-53197
-215633
2008-2009
-84341
-373367
Growth 2008-09/2007-08(%)
Imports
Growth 2008-09/2007-08(%)
Trade Balance
Item
2005-06 R
1
2
1 Exports
2 Imports
Trade Balance (1-2)
3 Invisibles Net
Current Account Balance
1 Foreign Investment
2 External Assistance
3 Commercial Borrowings
4 Short term Credit
5 Banking Capital
A.
6 Rupee Debt Service
B.
C.
7 Other Capital
Total Capital Account
Errors & Omissions
D.
E.
Overall Balance (A+B+C)
F
Reserves and Monetary Gold Monetary Movements (F+G)
IMF, Net
4,65,748
6,95,412
-2,29,664
1,85,927
-43,737
68,782
7,592
10,505
16,300
5,795
-2,557
5,548
1,11,965
-2,332
65,896
0
-65,896
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