2. Balance of Payment is the
systematic record of all the
international economic or
monetary transactions of a
country during a given period of
time usually one year.
International transactions
include exchanges of goods,
services or assets.

3. › The Current Account
› The Capital Account
› Official Reserves Account
› Errors and Omissions

4.  Goods account (Include all import and export
of visible)
 Service Account (Include all import and export
of invisible)
 Unilateral Transfers Account (Gifts,Grants,etc).

5. › Long term Capital Account
(Pvt. Direct Investment & Portfolio Investment & Govt.
Loans to foreign government.
› Short Term Capital Account
(Bank accounts & Other short term Payments)

6.  Official reserves assets include gold reserves,
foreign currencies, SDRs, reserve positions in
the IMF.

7.  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
 They are often referred to as "balancing
items".

8.  Balance of Payments
Red = deficit (more imports than exports)
Blue = surplus (more exports than imports)
Grey = no data

9.  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

10.  During the first plan period, the balance of
payments was affected by the Korean War
boom, American recession of 1953 and
favorable monsoon at home which helped
to boost agricultural and industrial
production.
 balance of payment during the first plan
was only Rs. 42 crores.

11.  An important feature of the second plan
period was the heavy deficit in the
balance of trade which aggregated to
Rs. 2339 crores.
 The foreign exchange reserves sharply
declined and the country was left with
no choice but to think of ways and
means to restrict imports and expand
exports

12.  The balance of current account was
unfavorable during the third plan .
 The serious adverse balance of
payments which started with the second
plan continued relentlessly during the
third and annual plans.
 Heavy amount had to be paid by India
in the form of interest payments on loans

13.  One of the objectives of the fourth plan
was self-reliance – i.e., import substitution
of certain critical commodities on the
one side and export promotion so as to
match the rising import bill, on the other
 Accordingly the government managed
to restrict imports and succeeded in
expanding exports.

14.  During the whole of the Fifth Plan India
experienced a surplus balance of payments due to
a sharp increase in the exports surplus on account
of invisibles.
 From 1979-80 onwards, India started experiencing
very adverse balance of payments.
 India had to meet this colossal deficit in the current
account through withdrawals and borrowings from
IMF .

15.  The Sixth plan characterize the balance
of payments position acute.
 The annual average current account
deficit was of the order of rs.2600 crores
during the Sixth Plan.
 During the Sixth Plan, the trade deficit
was 3.3 per cent of GDP and current
account deficit was 1.4 per cent of GDP.

16.  Exports performance substantially improved in the
Seventh Plan with average volume growth
exceeding 7 per cent.
 The share of net invisible earnings in financing trade
deficit declines from 63 per cent during the Sixth
Plan to 29.5 per cent during the Seventh Plan.
 The average current account deficit as a per cenr
of GDP increased to 2.4 per cent in the Seventh
Plan.

17. BOP BOT
 Include all international  Part of BOP
transactions  Only Visible
 Both Visible and invisible items
items.  Smaller than
 Wider than BOT BOP
 Always in balance  No need to be
balance

20. Period Features
I. Up to 1975-76 I. Deterioration
II.1976-77 to 1979-80 II. Transition &
Improvement
III.1980-81 to 1989-90 III. Emergence &
IV.1990-90 to 1995-96 Persistence of structural
Imbalance
V. 1996-97 to 2010-11
IV. Stabilization &
Strengthening
V. Resilience in addition to
growth

21.  Difficulty in India’s BOP
 Slow growth of exports in relation to
import
 92% CAD was financed by external
assistance at concessional terms
 CAD was 1.8 % of GDP

22.  Golden years of BOP’s
 CA surplus of 0.6% of GDP
 Foreign exchange reserve surplus
 Period of Indira Gandhi

23.  Severe BOP difficulties
 Loan from IMF, 5Billion SDR in 1981 but
took 3.9Billion
 Deficit in external trade
 Widening trade deficit due to import
requirement
 Decline in invisibles
 Reduction in concessional assistance &
market rate
 Disintegration of USSR &Gulf War
 CAD 2.2% of GDP

24.  BOP crisis reached its climax in 1990-
91 it is 3% of GDP

25.  Preference to non-debt creating
capital flows
 Liberalise the current account &
gradual liberalisation of Capital
account
 Fiscal&Monetary disciple Devaluation of Rupee by
20%-1991
 Exchange rate change (LERMS-92,UER-93& FULL
CONVERIBILITY OF CURRENCY IN THE CURRENT CCOUNT)
 Import restrictions on capital account & raw materials,
 Structural reforms aims at attracting FDI & Portfolio investments
 Reduction in tariff,
 As A result improvement in both CA & CAd

26.  Again Trade deficit Due to;
Impact of liberalization, Increasing
manufacturing activity, surplus in
invisible, pvt enterprises
• Capital account surplus to solve the
BOP problem
o Due to foreign exchange reserves,
through FDI
o Overall surplus

27.  Growing import intensity
 Net surplus on invisibles
 Mounting burden of external debt
servicing
 Rising oil import
 Commercial borrowing
 Nature of FDI
 Management of capital account
 Inflow of concessional aid

28.  Trade Agreement
 Trade Policy
 Currency Exchange Rate
 Tax , Tariff and Trade Barriers

29.  More inflow of capital
 India need more absorptive capacity
 Risk taking