Balanceofpayment 091012114602-phpapp01


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Balanceofpayment 091012114602-phpapp01

  1. 1. BALANCE OF PAYMENT OF INDIA Presented by- Vijay Jha
  2. 2. WHAT IS BOP ? <ul><li>The balance of payments accounts are those that record all transactions between the residents of a country and residents of all foreign nations. </li></ul><ul><li>The BOP is determined by the country's exports and imports of goods, services, and financial capital, as well as financial transfers. </li></ul><ul><li>It reflects all payments and liabilities to foreigners (debits) and all payments and obligations received from foreigners (credits). </li></ul><ul><li>Balance of payments is one of the major indicators of a country's status in international trade </li></ul>
  3. 3. BOP CONSISTS OF <ul><ul><li>The Current Account </li></ul></ul><ul><ul><li>The Capital Account </li></ul></ul><ul><ul><li>Official Reserves Account </li></ul></ul><ul><ul><li>Errors and Ommisions </li></ul></ul>
  4. 4. CURRENT ACCOUNT <ul><li>Includes all imports and exports of goods and services. </li></ul><ul><li>Includes unilateral transfers of foreign aid. </li></ul><ul><li>If the debits exceed the credits, then a country is running a trade deficit . </li></ul><ul><li>If the credits exceed the debits, then a country is running a trade surplus . </li></ul>
  5. 5. CURRENT ACCOUNT <ul><li>Export & Import of Merchandise & Services </li></ul><ul><li>Income Account </li></ul><ul><li>(The income account accounts mostly for investment income from dividends and interest on credit and payments on foreign taxes.) </li></ul><ul><li>Transfer payment </li></ul><ul><li>(Grants received / given, Pvt.Transfer) </li></ul>
  6. 6. CAPITAL ACCOUNT <ul><li>Foreign Investment(FDI, FII) </li></ul><ul><li>Banking Capital (NRI Deposits) </li></ul><ul><li>Short term credit </li></ul><ul><li>External Commercial Borrowings(ECB) </li></ul>
  7. 7. CAPITAL ACCOUNT <ul><li>If foreign ownership of domestic financial assets has increased more quickly than domestic ownership of foreign assets in a given year, then the domestic country has a capital account surplus . </li></ul><ul><li>On the other hand, if domestic ownership of foreign financial assets has increased more quickly than foreign ownership of domestic assets, then the domestic country has a capital account deficit . </li></ul>
  8. 8. OFFICIAL INTERNATIONAL RESERVES <ul><li>The official international reserve account records the change in stock of official international reserve assets (also known as foreign exchange reserves) at the country's monetary authority . </li></ul><ul><li>Official reserves assets include gold reserves, foreign currencies, SDRs, reserve positions in the IMF. </li></ul><ul><li>{Special Drawing Rights (SDRs) are potential claims on the freely usable currencies of IMF members.} </li></ul><ul><li>  </li></ul>
  9. 9. NET ERRORS AND OMISSIONS <ul><li>This is the last component of the balance of payments and principally exists to correct any possible errors made in accounting for the three other accounts </li></ul><ul><li>They are often referred to as &quot;balancing items&quot;. </li></ul>
  13. 13. APRIL – JUNE QUARTER 2008-09 (IN US $ BILLION ) (US $ BILLION) Items April-June 08 April-June 07 Jul-Sept 08 Jul-Sept 07 I. Current Account -10.7 -6.3 -12.5 -4.3 II. Capital Account (net) (a to f) 12.9 17.5 7.8 33.5 a.Foreign Investment (i+ii) 5.9 10.1 4.3 13 (i) Foreign Direct Investment 10.1 2.6 5.6 2.1 (ii) Portfolio Investment -4.2 7.5 -1.3 10.9 b.Banking Capital 2.7 -0.9 2.1 6.6 of which: NRI Deposits 0.8 -0.4 0.3 0.4 c.Short-Term Credit 2.2 1.8 NA NA d.External Assistance 0.3 0.2 NA NA e.External Commercial Borrowings 1.6 7.0 1.3 10.9 f.Other items in capital account* 0.2 -0.7 NA NA III. Valuation change 0.2 3.0 NA NA Total (I+II+III) 2.4 14.2 -4.7 29.2
  14. 14. INDIA’S BOP POSITION DURING THE 1 ST HALF OF 2008-09 (APRIL-SEPT) <ul><li>Widening of Tr. Deficit resulting in large CAD, and moderation in capital flows. </li></ul><ul><li>Merchandise trade deficit recorded a sharp increase during April-November 2008 on account of higher crude oil prices for most of the period and loss of momentum in exports since September 2008. </li></ul><ul><li>Net surplus under invisibles remained buoyant, (led by increase in software exports and private transfers.) </li></ul><ul><li>Net capital inflows reduced sharply and have remained volatile during 2008-09 so far. </li></ul>
  15. 15. …… CONTD <ul><li>While the net inward FDI remained buoyant net outward FDI also remained high during April-September 2008. </li></ul><ul><li>So the gross capital inflows were higher on account of higher FDI inflows and NRI deposits during the period. </li></ul><ul><li>The revised short-term debt maturing up to March 2009, was estimated at around US $ 85 billion as at end-March 2008. </li></ul>
  16. 16. … .CONTD <ul><li>India’s merchandise exports during April-Nov 2008 increased by 18.7 % while imports recorded a higher growth of 32.5 %, largely due to the rise in (POL) imports. </li></ul><ul><li>The rise in oil imports was primarily due to the elevated international crude oil prices, while the volume of oil imports moderated. </li></ul>
  17. 17. EXPORTS <ul><li>Decline in exports </li></ul><ul><li>1.1% drop to $ 12.7 billon in Dec 08 </li></ul><ul><li>12.1% drop in Oct 08 </li></ul><ul><li> 9.9% drop in Nov 08 </li></ul><ul><li>22% drop in Jan 09 </li></ul><ul><li>Decline of exports in following sectors: (Dec 08) </li></ul><ul><li>Handicraft & Handlooms 64% </li></ul><ul><li>Textile 13% </li></ul><ul><li>Gems & Jewellery 21% </li></ul><ul><li>Chemicals 21% </li></ul>
  18. 18. EXPORTS <ul><li>Increase in exports </li></ul><ul><li>Eng. Goods, Phama & Agri. Products </li></ul><ul><li>(in the range of 19-25%) </li></ul><ul><li>India’s estimated exports $ 170 billion FY 08-09 </li></ul><ul><ul><li> $ 160 billion FY 07-08 </li></ul></ul><ul><ul><li>Govt set target $ 200 billion </li></ul></ul>
  19. 19. IMPORTS <ul><li>Imports grew by 8.8% to $ 20.25 b in Dec 08 </li></ul><ul><li>Non oil imports 30.9% to $15.54 b </li></ul><ul><li>(consisting of Capital Equipment & Proj. Goods) </li></ul><ul><li>This suggests a robust domestic activity. </li></ul>
  20. 20. TRADE DEFICIT <ul><li>$ 7.57 Billion in Dec 08 </li></ul><ul><li>$ 10.07 Billion in Nov 08 </li></ul><ul><li>Tr. Deficit for 1 st 9 months is $ 93.8 billion </li></ul><ul><li> (74% higher than S 58.98 b in the year ago period ) </li></ul><ul><li>Lower Oil Imports over Jan- Mar will enable to end this fiscal with a Tr. Deficit of about 40% </li></ul><ul><li>higher than last year’s. </li></ul>
  21. 21. INWARD REMITTANCES <ul><li>Indicated to touch $ 40 billion in year 2008 </li></ul><ul><li>(World Bank projection was $ 30 billion ) </li></ul><ul><li>In 2007, No. 1 was India (27 billion) </li></ul><ul><li> No.2 was China (25.7 billion) </li></ul><ul><li>Unlike FIIs flows, inward remittances are considered to be extremely sticky </li></ul><ul><li>Mostly from Blue collar workers(not more than </li></ul><ul><li>$ 500 per month) </li></ul>
  22. 22. FOREX RESERVES <ul><li>Import cover of India’s foreign exchange reserves declined to 11.2 months as at end-September ‘08 as against 14.4 months as at end-March ‘08 in sync with the fall in reserves, the RBI said in its half-yearly report on forex reserves. </li></ul><ul><li>As of January 16, 2009, foreign exchange reserves at US $ 252.2 billion declined by US $ 57.5 billion over the level at end-March 2008 </li></ul>
  23. 23. ECB & FCCB <ul><li>Even after Indian govt. relaxed overseas borrowing norms for corporates, loans have failed to pick up.(as foreign banks curb lending) </li></ul><ul><li>During Oct- Dec 2008, inflows through ECB & FCCB were only $ 4.5 b against $ 8.1 b in Oct –Dec 2007 </li></ul><ul><li>Borrowings through ECB & FCCBs dipped 32% in 2008. </li></ul><ul><li>Indian companies borrowed $ 22.7 b during the year as compared to $33.1 b in 2007 </li></ul>
  24. 24. THE GLOBAL SCENE <ul><li>Commodity & oil prices have come down </li></ul><ul><li>Subprime crisis </li></ul>
  25. 25. IS INDIA HEADING TOWARDS BOP CRISIS OR NOT ? <ul><li>What is BoP crisis </li></ul><ul><li>Sufficient Forex Reserves </li></ul><ul><li>Volatility of FII </li></ul>
  26. 26. FACTORS IMPACTING BOP <ul><li>Trade Agreement </li></ul><ul><li>Trade Policy </li></ul><ul><li>Currency Exchange Rate </li></ul><ul><li>Tax , Tariff and Trade Barriers </li></ul>
  27. 27. IMPACT OF STIMULUS PACKAGE <ul><li>Trade Interest </li></ul><ul><li>Interest subversion </li></ul><ul><li>Exemption of Tax </li></ul>
  28. 28. MEASURES FOR MAKING BOP FAVOURABLE <ul><li>Diversification of Trade </li></ul><ul><li>Development of New Industries </li></ul><ul><li>Concentrate on selected sectors </li></ul><ul><li>Concentrating on Frugal engineering skills </li></ul><ul><li>Incentives related to Trade </li></ul>
  29. 29. <ul><li>Thank </li></ul><ul><li>You </li></ul>