This document discusses the balance of payments and the distinction between the balance of trade and balance of payments. It notes that the balance of trade refers narrowly to visible exports and imports, while the balance of payments includes both visible and invisible items. The balance of payments accounts must always balance, while disequilibriums can exist in the balance of trade. Various types of disequilibriums in the balance of payments are also outlined, along with their causes and potential corrective measures.

1. BALANCE OF PAYMENTS
TRADE
INTERNAL & INTERNATIONAL TRADE
VISIBLE & INVISIBLE ITEMS
BALANCE OF TRADE
BALANCE OF PAYMENTS
DISTINCTION BETWEEN BALANCE OF
TRADE & BALANCE OF PAYMENTS

2. Balance of Payments
BOT BOP
 It refers to the receipts &  It consists of the overall
payments on account of receipts & payments of both
visible exports and imports visible and invisible items
(merchandise items) (non-merchandise items)
 It is a narrow concept  It is a wider concept
 It is similar like customs  It is not similar like customs
record record
 There is disequilibrium (or  Here both exports and
imbalance) in BOT i.e. imports must be balanced
Exports and imports may not (i.e. in A/c sense)
be balanced
 There is no difference  There is much difference
between curr A/C & Cap A/C between Curr A/C & Cap A/C

3. ACCOUNT OF BOP
Receipts ( Rs Crs) Payments( Rs Crs)
1)Export of Goods 550 5)Import of Goods 800
2)Exports of Services 150 6) Imports of Services 50
3) Unrequited Receipts 100 7) Unrequited Payments 80
(Gifts, Indemnities from (Gifts, Indemnities to
foreigners etc) foreigners etc)
4)Capital Receipts 200 8)Capital Payments 70
( Borrowings from, ( Lending to ,
Capital Capital
Repayments by or Repayments to or
Sale of Assets to Purchase of Assets from
foreigners ) foreigners )
--------------- ---------------
Total Receipts 1000 Total Payments 1000

4. Account
i) Current Account: It consists of the imports and
exports of visible and invisible items plus the
unrequited receipts and payments i. e., items
1,2,and 3 and 5,6 and 7.
It can be seen that total receipts are
( 550+ 150+100)= 800 while total payments are
( 800+50 + 80) = 930. Thus there is a Deficit of Rs
130 on Current Account
ii) Capital Account: Capital Account consists of
transactions between countries arising due to
repayment to or from the foreign countries of the
previous loan, sale to or purchase from the
foreigners of capital assets etc
Thus it includes item no 4 and item no 8 i e (200-
70)= Rs 130
Thus deficit in the Current Account is corrected
through the surplus on Capital Account
“HENCE IN ACCOUNTING SENSE BOP ALWAYS
BALANCES”

5. EQUILIBRIUM IN BOP
BOP always balances in
accounting sense
DIS-EQUILIBRIUM IN BOP
Existence of Deficit or Surplus

6. TYPES OF DIS-
EQUILIBRIUM IN BOP
1)CYCLICAL DIS-EQUILIBRIUM
Caused due to Cyclical Fluctuations
2)SECULAR DIS-EQUILIBRIUM
Due to change in the economy from one
stage to another (for eco devpt)
3)STRUCTURAL DIS-EQUILIBRIUM
Due to change in the structure of the economy
Eg Decline of a particular industry, Loss of Service,
War , Nationalizations etc
4)FUNDAMENTAL DIS-EQUILIBRIUM
Originally coined by I M F
Long-Term Dis-Equm-
More than Five Years

7. CAUSES OF DIS-
EQUILIBRIUM IN BOP
 1) Economic Development of a Country.
 2) Increase in Income of people.
 3) Rise in Price-Level.
 4) Decrease in Exports.
 5) Repayment of Foreign Loans.
 6) Rapid Growth of Population.
 7) Imposition of Tariffs & Non-Tariff Barriers.
 8) Lack of International Co- operation

8. Measures to correct Dis- equilibrium in BOP
Monetary Measures Non-Monetary Measures
1.Deflation
2.Exchange
Export Promotion Import Restriction
Depreciation 1.Reducing export 1.Increasing import
3. Devaluation duties
duties
a) Elasticity of Demand 2.Import quotas
2.Export subsidies
b) Elasticity of Supply 3.Licining of import
3.Incentives
c) Cost-Price Structure of specific goods
d) No-Retaliation