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Balance of payments (2)

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Balance of payments (2)

  1. 1. Balance of Payments/ India’s Balance sheet
  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 Omissions </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>
  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>
  10. 10. Development in India’s Balance of Payment during the First Quarter (April –June) of 2010-11
  11. 11. Merchandise <ul><li>India’s merchandise exports recorded a growth of 37.2 percent year-on-year in Q1 of 2010-11 as against a decline of 31.8 per cent in Q1 of 2009-10. </li></ul><ul><li>Merchandise imports registered a growth of 35.7 per cent during Q1 of 2010-11 as against a decline of 21.7 per cent during Q1 of 2009-10. </li></ul><ul><li>The increase in imports during the current year partly reflected the impact of higher international crude oil prices. </li></ul><ul><li>Notwithstanding higher growth in exports relative to imports, the trade deficit, on a BoP basis, was higher at US$ 34.2 billion in Q1 of 2010-11 as compared with US$ 25.6 billion during Q1 of 2009-10. </li></ul>
  12. 12. Invisibles <ul><li>Invisibles receipts recorded a growth of 13.6 per cent, on year-on-year basis, during Q1 of 2010-11 mainly led by services exports. </li></ul><ul><li>Services exports registered a growth of 22.5 per cent led by travel and transportation as well as miscellaneous services such as software, business and financial services. </li></ul><ul><li>Business services receipts increased during Q1 of 2010-11 mainly due to trade-related services and business and management consultancy services. </li></ul><ul><li>Invisibles payments recorded a growth of 35.5 per cent (as against a decline of 5.7 per cent a year ago) mainly due to higher payments under investment income and also on account of higher payments under travel, transportation, business and financial services. </li></ul><ul><li>The lower size of invisibles surplus coupled with a higher trade deficit resulted in an increase in current account deficit during Q1 of 2010-11 to US$ 13.7 billion </li></ul>
  13. 13. Capital Account <ul><li>Both gross capital inflows to India and outflows from India increased during Q1 of 2010-11 as compared to last year. Gross capital inflows to India were higher at US$ 95.3 billion (US$ 77.1 billion a year ago) mainly led by portfolio investments and short-term trade credit. On the other hand, gross capital outflows were higher at US$ 76.9 billion (US$ 73.1 billion a year ago) driven by portfolio investments, FDI and NRI deposits </li></ul>
  14. 14. <ul><li>Sector-wise, the deceleration in FDI to India (i.e., inward FDI) was mainly on account of lower FDI inflows under construction, real estate, business and financial services. </li></ul><ul><li>Gross FDI by India (i.e., outward FDI) was marginally higher at US$ 3.1 billion (US$ 2.8 billion in Q1 of 2009- 10) mainly due to other FDI capital (i.e., inter-company loans). </li></ul><ul><li>Net portfolio investments were also significantly lower at US$ 4.6 billion during the quarter (US$ 8.3 billion during Q1 of 2009-10), mainly due to deceleration in net FII flows largely on account of risk aversion by global investors following the sovereign debt crisis in the euro-zone countries </li></ul>
  15. 15. <ul><li>Net ECBs were significantly higher at US$ 2.7 billion during the quarter (as against a decline of US$ 0.4 billion in Q1 of 2009-10) mainly due to higher disbursements of commercial loans to India coupled with lower repayments. </li></ul><ul><li>With net capital flows being higher than the current account deficit, the overall balance was in surplus. </li></ul><ul><li>Accordingly, there was an increase in foreign exchange reserves on BoP basis (i.e., excluding valuation) of US$ 3.7 billion during Q1 of 2010-11. In nominal terms (i.e., including valuation changes) foreign exchange reserves declined by US$ 3.3 billion during the quarter reflecting appreciation of US dollar against major international currencies during the quarter </li></ul>
  16. 16. 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>
  17. 17. Impact Of Stimulus Package <ul><li>Trade Interest </li></ul><ul><li>Interest subversion </li></ul><ul><li>Exemption of Tax </li></ul>
  18. 18. Measures for making BoP Favorable <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>

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