India has been experiencing a trade deficit based on its balance of trade figures from 2007-2011. Exports have increased over the years but have not kept pace with the rise in imports. This has led to the trade balance, the difference between exports and imports, being negative each year. The growing trade deficit indicates that India is importing more goods than it is exporting.

1. INDIA’S BALANCE OF TRADE
AND BALANCE OF PAYMENT
PRESENTED BY:
PRAVEENA.L
II MBA ‘A’

2. BALANCE OF PAYMENT
Meaning :
The exports and imports involve finance i.e. receipts and
payments in money. An account of all receipts and payments
is termed as Balance of Payments (BOP).
The balance of payment record is maintained in a
standard double-entry book-keeping method. International
transactions enter in to the record as credit or debit. The
payments received from foreign countries enter as credit and
payments made to other countries as debit.

3. Definition:
According to Kindle berger, "The balance of
payments of a country is a systematic record of all
economic transactions between the residents of the
reporting country and residents of foreign countries
during a given period of time".

4. STRUCTURE OF BALANCE OF PAYMENT

7. 1. Trade account balance:
 It is the difference between exports and imports of
goods, usually referred as visible or tangible items.
 Trade account balance tells as whether a country
enjoys a surplus or deficit on that account.
 The Balance of Trade is also referred as the
'Balance of Visible Trade' or 'Balance of
Merchandise Trade'.

8. 2. Current account balance:
 It is difference between the receipts and payments on account of
current account which includes trade balance.
 The current account includes export of services, interests, profits,
dividends and unilateral receipts from abroad, and the import of
services, interests, profits, dividends and unilateral Payments to
abroad.
 There can be either surplus or deficit in current account.
 The deficit will take place when the debits are more than credits
or when payments are more than receipts and the current
account surplus will take place when the credits are more than
debits.

9. 3. Capital account balance:
 It is difference between the receipts and payments on account
of capital account.
 The capital account involves inflows and outflows relating to
investments, short tern borrowings/lending, and medium term
to long term borrowing/lending.
 There can be surplus or deficit in capital account.
 The surplus will take place when the credits are more than
debits and the deficit will take place when the debits are more
than credits.

10. 4. Foreign exchange reserves:
 It shows the reserves which are held in the form of foreign
currencies usually in hard currencies like dollar, pound etc.,
gold and Special Drawing Rights (SDRs).
 They increase when the individual has a surplus in his
transactions and decrease when he has a deficit.
 When a country enjoys a net surplus both in current account
& capital account, it increases foreign exchange reserves.

11. 5. Errors and omission:
 The errors may be due to statistical discrepancies &
omission may be due to certain transactions may not be
recorded.
 For eg: A remittance by an Indian working abroad to
India may not yet recorded, or a payment of dividend
abroad by an MNC operating in India may not yet
recorded or so on. The errors and omissions amount
equals to the amount necessary to balance both the
sides.

12. DISEQUILIBRIUM IN BOP
Though the credit and debit are written balanced in the
balance of payment account, it may not remain
balanced always. Very often, debit exceeds credit or the
credit exceeds debit causing an imbalance in the
balance of payment account. Such an imbalance is
called the disequilibrium. Disequilibrium may take place
either in the form of deficit or in the form of surplus.

13. CAUSES:
1. POPULATION GROWTH
2. DEVELOPMENT PROGRAMME
3. DEMONSTRATION EFFECT
4. NATURAL FACTORS
5. CYCLICAL FLUCTUATION
6. INFLATION
7. POOR MARKETING STRATEGY
8. FLIGHT OF CAPITAL
9. GLOBALISATION

14. Types :
1. Structural disequilibrium
2. Cyclical disequilibrium
3. Technological disequilibrium
4. Short run disequilibrium
5. Long run or secular disequilibrium
6. Monetary disequilibrium

15. BALANCE OF TRADE
 The difference between a country's imports and its exports.
 Debit items include imports, foreign aid, domestic spending
abroad and domestic investments abroad.
 Credit items include exports, foreign spending in the domestic
economy and foreign investments in the domestic economy.

16. APPENDIX TABLE 17: INDIA’S EXPORTS AND IMPORTS
(US $ million)
Exports of principal commodities
Commodity/Group
April-March
2007-08 2008-09 2009-10R 2010-11 P
1 2 3 4 5
I. Primary Products 27,551.9 25,335.4 26,396.5 35,358.7
A. Agricultural & Allied Products 18,432.1 17,534.9 17,734.1 24,696.1
B. Ores & Minerals 9,119.8 7,800.5 8,662.5 10,662.6
II. Manufactured Goods 102,978.8 123,148.9 115,180.7 168,098.1
A. Leather & Manufactures 3,502.5 3,556.0 3,361.1 3,789.3
B. Chemicals & Related Products 21,193.8 22,708.1 22,908.8 28,979.6
C. Engineering Goods 37,365.2 47,285.6 38,271.3 68,784.1
D. Textiles & Textile Products 19,425.7 20,016.4 19,853.0 23,312.2
E. Gems & Jewellery 19,678.7 27,955.2 28,996.3 40,790.7
F. Handicrafts 508.2 301.0 224.8 233.1
III. Petroleum Products 28,363.1 27,547.0 28,192.0 41,918.0
IV. Others 4,010.4 6,768.2 8,982.1 9,027.3
Total Exports (I+II+III+IV) 162,904.2 182,799.5 178,751.4 254,402.1
Imports of principal commodities
I. Bulk Imports 112,744.7 138,791.1 125,315.2 150,489.7
A. Petroleum, Petroleum Products & Related Material 79,644.5 93,671.7 87,135.9 106,068.2
B. Bulk Consumption Goods 4,600.3 4,975.3 9,012.7 8,720.3
C. Other Bulk Items 28,499.9 40,144.0 29,166.5 35,701.1
II. Non-Bulk Imports 138,694.4 160,042.8 163,057.8 202,085.4
A. Capital Goods 70,110.5 71,833.1 65,865.0 71,627.2
B. Mainly Export Related Items 20,768.3 31,930.8 31,270.0 49,639.4
C. Others 47,815.7 56,278.9 65,922.8 80,818.7
Total Imports (I+II) 251,439.2 298,833.9 288,372.9 352,575.0
P : Provisional. R : Revised.
Source : DGCI & S.

17. TRADE
YEARS EXPORT IMPORT BALANCE
2007-08 162904 251439 -88535
2008-09 182799 298833 -116034
2009-10 178751 288372 -109621
2010-11 254402 352575 -98173

18. INDIA’S BOT TREND 2007-2011
700000
600000
500000
400000
TRADE BALANCE
IMPORT
300000 EXPORT
200000
100000
0
2007-08 2008-09 2009-10 2010-11