Webinar about BOP since 1991

1. INDIA'S BALANCE OF PAYMENT
SINCE 1991
PRESENTED BY: AFREEN KHAN
FROM NAGINDAS KHANDWALA
COLLEGE
MA in ECONOMICS

2. INTRODUCTION
A balance of payment (BOP) is a systematic records where
all the economic transactions between the country and the
rest of the world in a particular
period.
India faced a severe economic crises in 1991 in the form of
a balance of payment.
BOP is of three types :
>> Balance BOP [XGDP=MGDP]
>>Surplus or favorable BOP [XGDP>MGDP]
>>Deficit or unfavorable BOP [XGDP<MGDP]

3.  The worst financial crisis India faced was the balance of
payment crisis in 1991.
 Accused three macro-economic indicator:
1. Forex Reserve- was only $1.4 Billion (which was sufficient to
finance the import of India for two weeks.)
2. Inflation rate in India- was double-digit (10.7%) [called
galloping or hyper-inflation.)
Inflation is called an “invisible robber.” It will reduce the
.competitive strength of the economy in the international
market.
3. India had a significant deficit in the BOP ( i.e. the total value
of exports was less than the total value of imports and therefore,
the credit worthiness of the country in the international market
was very low.)

4. •Balance of payment is divided into three major accounts:
1. Current Account 2. Capital Account 3. Financial Account
• Overall Balance of Payment:.
1. Current Account Balance=
Balance of Visible Trade (goods)+
Balance of Invisible Trade (services)+
Balance of Unilateral Transfers.
2. Capital Account Balance=.
Inflow of foreign exchange- outflow of foreign exchange
3. Financial Account Balance:. The holdings of Foreign Reserves & gold by official
institutions like the central bank.
• Overall Balance of Payment=
Current Account Balance+
Capital Account Balance+
Financial Account Balance.

5.  Year 1991 is marked as a landmark in India’s history. The country
faced its biggest economic crisis.
 The period post-1991 highlighted the summary of the balance of
payment, the balance of trade, capital indicators and top export and
import in the country.
 Post to Liberalization, Privatization and Globalization (LPG) reform.
1. LIBERALISATION: The government allowed private sectors to expand
without or with fewer restrictions depicts liberalization in the
country.
2. PRIVATIZATION:Government companies can be converted into
private companies by way of disinvestment or by the withdrawal of
ownership of government and public sector companies.
3. GLOBALIZATION: Globalization includes F
India’s Balance of Payment Situation Post-1991:

7.  Imports and exports are continuously increasing in post-1991, though exports have
increased up to a large extent they never crossed import expenditure which gave us
a continuous trade balance deficit.
 The trade balance deficit for the year 2005-06 is -51841 million US $.
 The current account consists of visible and invisible accounts in which merchandise
is covered under visible and services, income; transfers are covered under invisible
in which we are on overall surplus drilling down.
 The surplus in Invisibles reduces overall CAD.
 Also, in Capital Account which is considered to be a hub for assets and liabilities in
which Non- residential deposits are increasing continuously and stand at 2789
million US $ which is increased by 81% as compared to 1991 deposits.
 It is previously half of the capital inflows which after LPG reforms increased by 43%
in 1993 and is on a continuous cycle of improvement & increased by 71 % till 2005-
06.
 Foreign investment which is done is of two types, FDI and FII. Out of total foreign
investment of US $ 17224 million, FDI accounted for $ 4730 million whereas foreign
institutional investors accounted for $ 9926 million & remaining to other
investments.
Table Explanation:.

8.  The Balance of Payments position improved to USD 433.7 billion by
September, 2019 from USD 412.9 billion of forex reserves in March,
2019. This is on the back of Current Account Deficit (CAD) narrowing
further to 1.5 per cent of GDP in the first half of 2019-20 from 2.1 per
cent in 2018-19. Net FDI inflows remained buoyant attracting USD 24.4
billion in the first eight months of 2019-20, much higher than the
corresponding period of 2018-19. Net overseas remittances in the first
half of 2019-20 were more than 50 per cent of total receivables in
2018-19, standing at USD 38.4 billion. As per World Bank report of
2019, India’s 17.5 million diaspora made it the top remittance-recipient
country in 2018.
 India’s foreign reserves are comfortably placed at USD 461.2 billion as
on 10th January, 2020. Further, External Debt levels remained low at
20.1 % of GDP by the end of September 2019. India’s external debt
liabilities to GDP,including debt and equity components, has increased
at the end of June 2019, primarily driven by increase in FDI, portfolio
flows and External Commercial Borrowings (ECBs).
India’s Balance of Payments Position Improves, as
Current Account Deficit Declines Further: Economic Survey:

9.  India’s current account balance (CAB) recorded a
surplus of US$ 19.8 billion (3.9 per cent of GDP) in Q1
of 2020-21 on top of a surplus of US$ 0.6 billion (0.1
%of GDP) in the preceding quarter, i.e., Q4 of 2019-
20; a deficit of US$ 15.0 billion (2.1%Of GDP) was
recorded a year ago [i.e. Q1 of 2019-20].
 The surplus in the current account in Q1 of 2020-21
was on account of a sharp contraction in the trade
deficit to US$ 10.0 billion due to steeper decline in
merchandise imports relative to exports on a year-
on-year basis.
Developments in India’s Balance of Payments during
the First Quarter (April-June) of 2020-21:.

10.  With repayments exceeding fresh disbursals,
external commercial borrowings to India recorded
net outflow of US$ 1.1 billion in Q1 of 2020-21 as
against an inflow of US$ 6.0 billion a year ago.
 Net inflow on account of non-resident deposits
increased to US$ 3.0 billion from US$ 2.8 billion in
Q1 of 2019-20.
 There was an accretion of US$ 19.8 billion to the
foreign exchange reserves (on BoP basis) as
compared with that of US$ 14.0 billion in Q1 of
2019-20
Continue:

11.  India faced a severe BOP crisis in 1991 when India did not have sufficient
forex reserves to finance the imports for more than two weeks. Also,
inflation was double-digit and India had a significant deficit in the
balance of payment.
 To overcome this crisis, the Indian government approached the IMF and
World Bank and established a new economic policy.
 The Liberalization, Privatisation and Globalisation took place post-1991
crisis.
 The BOP crisis resulted in a low credit rating, a decrease in foreign
exchange reserves, and loss of confidence in the economy. LPG policy
which has post-crisis has helped for the development and growth of the
nation.
 Due to globalization, there has been an increase in foreign direct
investment leading to the country’s growth.
 The remittance receivables of India have been highest. To reduce the
deficit country should focus on how to increase exports with rapid
growth and reduce imports.
CONCLUSION:.