The balance of payments is a systematic record of all international transactions made by a country during a given period. It includes the balance of current account (trade balance, services balance, unilateral transfers balance) and the balance of capital account (private investments, portfolio investments, government loans). A country's balance of payments is in disequilibrium when there is a surplus or deficit, which can be caused by factors like business cycles, investment programs, population growth, and international economic policies. Measures to correct disequilibriums include monetary policies like devaluation, exchange controls, and capital controls as well as trade policies like tariffs and quotas.

1. Balance Of Payments
It is a systematic record of all international transactions of that country
during a given period. It is different from balance of trade which is
defined as the difference b/n value of goods sold to foreigners from one
country and value of goods purchased by it from foreign countries.
It is composed of two sections:
Balance of Current Account
It includes balance of services, balance of unilateral transfers and
balance of trade.

2. Balances of services records all the services exported and imported by a country in a
year. They are invisible and intangible.
They include
Transportation, banking and insurance receipts and payments from and to the foreign
countries.
Tourism, travel services and tourist purchases of goods and services received from
foreign visitors and paid out to foreign countries.
Expenses of diplomatic and military personnel stationed overseas and receipts from
similar personnel from overseas stationed in the home country.

3. Balance of unrequited (unilateral) transfers
It includes all gifts, donations, grants, receipts and payments to other
countries.
All these balances ,i.e., balance of trade, balance of services and
balance of unilateral transfers constitute balance of current account.
Balance of payment on capital account: It includes balances of private
direct investments, pvt. portfolio investments(banking capital) and govt.
loans to foreign countries. It basically deals with debts and claims.

4. Main items of capital account:
Pvt.foreign capital flow,movement in banking capital(portfolio captical),official
capital transaction(loans received by the pub. Sector ,foreign currency
reserves, gold, SDR of the IMF etc.gold movement( buying and selling by the
C.B., and other miscellaneous items like all kinds of capital receipts and
payments.
Balance of Payments always Balances:
In the accounting sense, bop always balances because payment accounts are
always prepared on the basis of double entry system, where the receipts side
is always equal to payments side.
In operational sense(economic balance),it is not necessary that bop should
always balance. When the current account is in deficit or surplus, then the
balance is restored with the help of capital account.

5. Disequilibrium in BOP
A country’s BOP is in disequilibrium when there is either a
‘surplus’(favourable i.e,when receipts exceeds, total payments) or
‘deficit’(unfavourable i.e, when total payments exceeds total receipts) in
the BOP
Types
Cyclical diseq…..: It is caused by business cycles.
Structural diseq…: It is caused when heavy investment programes are
undertaken by developing countries by resorting to heavy imports not
matched by equivalent amount of exports

6. Secular disequi..: The movement of an economy from one stage to another causes
secular disequ…EG.rapid growth in pop . may lead to increase in imports and decrease
in exports.
Causes for disequi….
Natural factors:-like flood, drought etc may lead to fall in production-fall
in exports(imports remaining the same may lead to adverse BOP
Change in the price-cost structure of export industries:- high price cost
structure may reduce exports making BOP adverse.
Heavy exp. On Embassies by newly independent countries in order to
make better relations with other countries.
Development Schemes:-DCs may import a lot of machines, raw-
materials etc in the initial stages not matches by sufficient exports .

7. Change in the rate of foreign exchange:- If the external value of our
currency depreciates imports become dearer but exporters gain.
Fall in DD for the country’s goods in the foreign market.
Trade cycles:- A regular feature of capitalistic country. Exports may fall
during depression, leading to adverse balance.
Import of services in the initial stages of development.
Demonstration Effect:- Imports are more and exports less.
Pop. Explosion:- increased consumption DD and fall in export.
Foreign capital investment outflow with the aim of getting profit.
International Economic Practices and Policies:- Like imposing sanctions
on certain countries,imposing high duties on Indian textile goods by the
EU.
Political Factors like expansion of embassies,political
instability,international relations,partion or unification of a country.

8. MEASURES FOR CORRECTING DISEQUILIBRIUM
Economic measures-broadly divided into.
Monetary measures
Deflation:- volume of currency to be reduced-bank rate has to be raised
to reduce the volume of credit and the demand for imports. A fall in
prices and costs in the home country will encourage exports and
discourage imports.
Depreciation:- It means fall in the rate of exchange of one country in
terms of another-imports become costlier as one has to pay more-
exports become cheaper-BOP becomes favourable.

9. Devaluation:- It means lowering the value of one currency in terms of
another The difference b/n depri..& deval..is that deval..is brought about
by the govt. and depre.. is effected by the market forces .Here, imports
become costlier and exports cheaper.
Exchange Control:--All the exporters are directed by the CB to surrender
their foreign exchange earnings to it , and the foreign exchange is
rationed out among the licensed exporters.
External Debts:- the govt can also borrow from international agencies to
correct its balance of payments.

10. NON-ECONOMIC MONETARY MEASURES
Discouraging imports and encouraging exports.EG., impose heavy duties
on imports and reduce export duties.
Quota restrictions—Determining a quota to reduce import—licences
are issued to regulate imports—it is a more effective method than
imposing heavy import duties because they have immediate effect on
reducing imports.
Adjustment through capital Movement:- A deficit can be met by capital
movement- If capital is perfectly mobile among the nations, a small rise
in domestic interest rate will bring a large inflow of capital and it will
continue till the domestic rate is equal to the world rate.

11. Tariffs:-they are directed by the govt.By imposing higher tariffs brings in
more revenue to the govt.But quotas bring in no revenues.Distribution
of quotas may involve corruption and discrimination.
Attraact Foreign Tourists:- They bring with them a large amount of
foreign currency.
Liberal Industrial Policy.- It wil encourage exports and substitute
imports.

12. Political Measures
Restriction on Expenditures on Embassies, political and administrative
bodies etc can improve BOP problems.
No Political Alliances:- Countries should become independent
sovereign states which can make necessary measures to correct adverse
BOP.
Economy in Political and Administrative matters:-Non essential foreign
trips should be banned.
Changes in Basic Political Ideologies:- EG. LPG.
Participation and Contribution from NRIs.
Social Measures:- Making people aware of the situation.EG.economic
use of petroleum products.