Trends and challenges of BOP of India,Balance Of Payments Position in India,Balance Of Payments – Introduction Components Of A BOP Statement Balance Of Payment in India Bop Crisis In India Developments In India’s Bop During April-June 2014 Measures of Correcting Balance of Payment

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Balance Of Payments Position in India
BALANCE OF PAYMENTS
Definition:
Balance of payments accounts are an accounting record of all monetary transactions between a
country and the rest of the world. These transactions include payments for the country's exports
and imports of goods, services, financial capital, and financial transfers.
In simple words, it is the method countries use to monitor all international monetary transactions
at a specific period of time. Usually, the BOP is calculated every quarter and every calendar
year. All trades conducted by both the private and public sectors are accounted for in the BOP in
order to determine how much money is going in and out of a country. If a country has received
money, this is known as a credit, and if a country has paid or given money, the transaction is
counted as a debit. Theoretically, the BOP should be zero, meaning that assets (credits) and
liabilities (debits) should balance, but in practice this is rarely the case. Thus, the BOP can tell
the observer if a country has a deficit or a surplus and from which part of the economy the
discrepancies are stemming.
In other words:
The balance of payments of a country is a systematic record of all economic transactions
between the residents of a country and the rest of the world. It presents a classified record of all
receipts on account of goods exported, services rendered and capital received by residents and

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payments made by theme on account of goods imported and services received from the capital
transferred to non-residents or foreigners.
- Reserve Bank of India
The above definition can be summed up as following: - Balance of Payments is the summary of
all the transactions between the residents of one country and rest of the world for a given period
of time, usually one year.
Purpose:
 The BOP is an important indicator of pressure on a country’s foreign exchange rate, and
thus on the potential for a firm trading with or investing in that country to experience
foreign exchange gains or losses. Changes in the BOP may predict the imposition or
removal of foreign exchange controls.
 Changes in a country’s BOP may signal the imposition or removal of controls over
payment of dividends and interest, license fees, royalty fees, or other cash disbursements
to foreign firms or investors.
 The BOP helps to forecast a country’s market potential, especially in the short run. A
country experiencing a serious trade deficit is not likely to expand imports as it would if
running a surplus. It may, however, welcome investments that increase its exports.
Terminologies:
a. Favorable Balance Of Payments
Value of total receipts more than total payments
b. Adverse Balance Of Payments

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Value of total receipts less than total payments
c. Balanced Balance Of Payments:
Value of total receipts equals total payments.
d. Unrequited receipts:
Receipts for which nothing has to be paid in return.
e. Unrequited payments:
Payments for which nothing is received in return.
The definition given by RBI needs to be clarified further for the following points:
A. Economic Transactions
An economic transaction is an exchange of value, typically an act in which there is transfer of
title to an economic good the rendering of an economic service, or the transfer of title to assets
from one economic agent (individual, business, government, etc) to another. An international
economic transaction evidently involves such transfer of title or rendering of service from
residents of one country to another. Such a transfer may be a requited transfer (the transferee
gives something of an economic value to the transferor in return) or an unrequited transfer (a
unilateral gift). The following are the basic types of economic transactions that can be easily
identified:
1. Purchase or sale of goods or services with a financial quid pro quo – cash or a promise to
pay. [One real and one financial transfer].
2. Purchase or sale of goods or services in return for goods or services or a barter transaction.
[Two real transfers].

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3. An exchange of financial items e.g. – purchase of foreign securities with payment in cash or
by a cheque drawn on a foreign deposit. [Two financial transfers].
4. A unilateral gift in kind [One real transfer].
5. A unilateral financial gift. [One financial transfer].
B. Resident
The term resident is not identical with “citizen” though normally there is a substantial overlap.
As regards individuals, residents are those individuals whose general centre of interest can be
said to rest in the given economy. They consume goods and services; participate in economic
activity within the territory of the country on other than temporary basis. This definition may
turnout to be ambiguous in some cases. The “Balance of Payments Manual” published by the
“International Monetary Fund” provides a set of rules to resolve such ambiguities.
As regards non-individuals, a set of conventions have been evolved. E.g. – government and non
profit bodies serving resident individuals are residents of respective countries, for enterprises, the
rules are somewhat complex, particularly to those concerning unincorporated branches of foreign
multinationals. According to IMF rules these are considered to be residents of countries in which
they operate, although they are not a separate legal entity from the parent located abroad.
International organisations like the UN, the World Bank, and the IMF are not considered to be
residents of any national economy although their offices are located within the territories of any
number of countries.
To certain economists, the term BOP seems to be somewhat obscure. Yeager, for example, draws
attention to the word ‘payments’ in the term BOP; this gives a false impression that the set of

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BOP accounts records items that involve only payments. The truth is that the BOP statements
records both payments and receipts by a country. It is, as Yeager says, more appropriate to
regard the BOP as a “balance of international transactions” by a country. Similarly the word
‘balance’ in the term BOP does not imply that a situation of comfortable equilibrium; it means
that it is a balance sheet of receipts and payments having an accounting balance.
Like other accounts, the BOP records each transaction as either a plus or a minus. The general
rule in BOP accounting is the following:-
a) If a transaction earns foreign currency for the nation, it is a credit and is recorded as a plus
item.
b) If a transaction involves spending of foreign currency it is a debit and is recorded as a
negative item.
The BOP is a double entry accounting statement based on rules of debit and credit similar to
those of business accounting & book-keeping, since it records both transactions and the money
flows associated with those transactions. Also in case of statistical discrepancy the difference
amount is adjusted with errors and omissions account and thus in accounting sense the BOP
statement always balances.
The Various Components Of A BOP Statement
A. Current Account
B. Capital Account
C. Errors & Omissions

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Current Account
The current account shows the net amount a country is earning if it is in surplus, or spending if it
is in deficit. It is the sum of the balance of trade (net earnings on exports minus payments for
imports), factor income (earnings on foreign investments minus payments made to foreign
investors) and cash transfers. It is called the current account as it covers transactions in the "here
and now" – those that don't give rise to future claims.
It can be calculated by a formula:
Where,
CA: current account
X and M: export and import of goods and services respectively
NY: net income from abroad
NCT: net current transfers.
BALANCE OF CURRENT ACCOUNT
BOP on current account refers to the inclusion of three balances of namely – Merchandise
balance, Services balance and Unilateral Transfer balance. In other words it reflects the net flow
of goods, services and unilateral transfers (gifts). The net value of the balances of visible trade
and of invisible trade and of unilateral transfers defines the balance on current account.

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BOP on current account is also referred to as Net Foreign Investment because the sum represents
the contribution of Foreign Trade to GNP.
Thus the BOP on current account includes imports and exports of merchandise (trade balances),
military transactions and service transactions (invisibles). The service account includes
investment income (interests and dividends), tourism, financial charges (banking and insurances)
and transportation expenses (shipping and air travel). Unilateral transfers include pensions,
remittances and other transfers for which no specific services are rendered.
It is also worth remembering that BOP on current account covers all the receipts on account of
earnings (or opposed to borrowings) and all the payments arising out of spending (as opposed to
lending). There is no reverse flow entailed in the BOP on current account transactions.
STRUCTURE OF CURRENT ACCOUNT
Transactions Credit Debit Net Balance
1. Merchandise Export Import -
2. Foreign Travel Earning Payment -
3. Transportation Earning Payment -
4. Insurance (Premium) Receipt Payment -
5. Investment Income Dividend Receipt Dividend Payment -
6.Government (purchase of
goods & services)
Receipt Payment -
Current A/C Balance - - Surplus (+)
Deficit (-)

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THE CAPITAL ACCOUNT
The capital account records all international transactions that involve a resident of the country
concerned changing either his assets with or his liabilities to a resident of another country.
Transactions in the capital account reflect a change in a stock – either assets or liabilities.
It is often useful to make distinctions between various forms of capital account transactions. The
basic distinctions are between private and official transactions, between portfolio and direct
investment and by the term of the investment (i.e. short or long term). The distinction between
private and official transaction is fairly transparent, and need not concern us too much, except for
noting that the bulk of foreign investment is private.
Direct investment is the act of purchasing an asset and the same time acquiring control of it
(other than the ability to re-sell it). The acquisition of a firm resident in one country by a firm
resident in another is an example of such a transaction, as is the transfer of funds from the
‘parent company in order that the ‘subsidiary’ company may itself acquire assets in its own
country. Such business transactions form the major part of private direct investment in other
countries, multinational corporations being especially important. There are of course some
examples of such transactions by individuals, the most obvious being the purchase of the ‘second
home’ in another country.
Portfolio investment by contrast is the acquisition of an asset that does not give the purchaser
control. An obvious example is the purchase of shares in a foreign company or of bonds issued
by a foreign government. Loans made to foreign firms or governments come into the same broad
category. Such portfolio investment is often distinguished by the period of the loan (short,
medium or long are conventional distinctions, although in many cases only the short and long

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categories are used). The distinction between short term and long term investment is often
confusing, but usually relates to the specification of the asset rather than to the length of time of
which it is held. For example, a firm or individual that holds a bank account with another country
and increases its balance in that account will be engaging in short term investment, even if its
intention is to keep that money in that account for many years. On the other hand, an individual
buying a long term government bond in another country will be making a long term investment,
even if that bond has only one month to go before the maturity. Portfolio investments may also
be identified as either private or official, according to the sector from which they originate.
The purchase of an asset in another country, whether it is direct or portfolio investment, would
appear as a negative item in the capital account for the purchasing firm’s country, and as a
positive item in the capital account for the other country. That capital outflows appear as a
negative item in a country’s balance of payments, and capital inflows as positive items, often
causes confusions. One way of avoiding this is to consider that direction in which the payment
would go (if made directly). The purchase of a foreign asset would then involve the transfer of
money to the foreign country, as would the purchase of an (imported) good, and so must appear
as a negative item in the balance of payments of the purchaser’s country (and as a positive item
in the accounts of the seller’s country).
The net value of the balances of direct and portfolio investment defines the balance on capital
account.
Short term capital movement includes:
 Purchase of short term securities
 Speculative purchase of foreign currency

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 Cash balances held by foreigners
 Net balance of current account
Long term capital movement includes:
 Investments in shares, bonds, physical assets etc.
 Amortization of capital
CAPITAL ACCOUNT CONVERTIBILITY (CAC)
While there is no formal definition of Capital Account Convertibility, the committee under the
chairmanship of S.S. Tarapore has recommended a pragmatic working definition of CAC.
Accordingly CAC refers to the freedom to convert local financial assets into foreign financial
assets and vice – a – versa at market determined rates of exchange. It is associated with changes
of ownership in foreign / domestic financial assets and liabilities and embodies the creation and
liquidation of claims on, or by, the rest of the world. CAC is coexistent with restrictions other
than on external payments. It also does not preclude the imposition of monetary / fiscal measures
relating to foreign exchange transactions, which are of prudential nature.
Following are the prerequisites for CAC:
1. Maintenance of domestic economic stability.
2. Adequate foreign exchange reserves.
3. Restrictions on inessential imports as long as the foreign exchange position is not very
comfortable.
4. Comfortable current account position.
5. An appropriate industrial policy and a conducive investment climate.

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6. An outward oriented development strategy and sufficient incentives for export growth.
DIFFERENCE BETWEEN CURRENT ACCOUNT AND CAPITAL ACCOUNT
CURRENT ACCOUNT CAPITAL ACCOUNT
• Indicates flow aspect of
country’s national transactions
• Relates to goods , services and
unrequited transfers
• Indicates changes in stock magnitudes
• Relates to all transactions constituting
debts and transfer of ownership
STRUCTURE OF BALANCE OF PAYMENTS ACCOUNT
CREDITS DEBITS
Current A/c:
• Exports of goods(Visible items)
• Exports of services (Invisibles)
• Unrequited receipts(gifts , remittances,
indemnities, etc. from foreigners)
Capital A/c:
• Capital receipts (Borrowings from
abroad, capital repayments by, or sale
of assets to foreigners, increase in stock
of gold and reserves of foreign currency
etc.)
Current A/c:
• Imports of goods(Visible items)
• Imports of services(Invisibles)
• Unrequited payments( gifts,
remittance, indemnities etc. to
foreigners)
Capital A/c:
• Capital payments (lending to, capital
repayments to, or purchase of assets
from foreigners, reduction in stock of
gold and reserves of foreign currency
etc.)

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ERRORS AND OMISSIONS
Errors and omissions is a “statistical residue.” It is used to balance the statement because in
practice it is not possible to have complete and accurate data for reported items and because
these cannot, therefore, ordinarily have equal entries for debits and credits. The entry for net
errors and omissions often reflects unreported flows of private capital, although the conclusions
that can be drawn from them vary a great deal from country to country, and even in the same
country from time to time, depending on the reliability of the reported information. Developing
countries, in particular, usually experience great difficulty in providing reliable information.
Errors and omissions (or the balancing item) reflect the difficulties involved in recording
accurately, if at all, a wide variety of transactions that occur within a given period of (usually 12
months). In some cases there is such large number of transactions that a sample is taken rather
than recording each transaction, with the inevitable errors that occur when samples are used. In
others problems may arise when one or other of the parts of a transaction takes more than one
year: for example with a large export contract covering several years some payment may be
received by the exporter before any deliveries are made, but the last payment will not made until
the contract has been completed. Dishonesty may also play a part, as when goods are smuggled,
in which case the merchandise side of the transaction is unreported although payment will be
made somehow and will be reflected somewhere in the accounts. Similarly the desire to avoid
taxes may lead to under-reporting of some items in order to reduce tax liabilities.
Finally, there are changes in the reserves of the country whose balance of payments we are
considering, and changes in that part of the reserves of other countries that is held in the country
concerned. Reserves are held in three forms: in foreign currency, usually but always the US

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dollar, as gold, and as Special Deposit Receipts (SDR’s) borrowed from the IMF. Note that
reserves do not have to be held within the country. Indeed most countries hold a proportion of
their reserves in accounts with foreign central banks.
The changes in the country’s reserves must of course reflect the net value of all the other
recorded items in the balance of payments. These changes will of course be recorded accurately,
and it is the discrepancy between the changes in reserves and the net value of the other record
items that allows us to identify the errors and omissions.
Balance Of Payment in India
India’s balance of payment position was quite unfavorable during the time of country’s entry into
liberalized trade regime. Two decades of economic reforms and free trade opened several
opportunities that, of course, reflected in the balance of payments performance of the country.
India’s Balance of Payments picture since 1991
Independent India’s external trade and performance had faced severe threats many a times. The
most challenging one was that of 1991.The economic crisis of 1991 was primarily due to the
large and growing fiscal imbalances over the 1980s. India’s balance of payments in 1990-91 also
suffered from capital account problems due to a loss of investor confidence. The widening
current account imbalances and reserve losses contributed to low investor confidence putting the
external sector in deep dilemma. During 1990-91, the current account deficit steeply hiked to $-
9680 million while the capital account surplus was far below at $ 7188 million. This led to an
ever time high deficit in BOP position of India.

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India initiated economic reforms to find the way out of the growing crisis. Structural measures
emphasized accelerating the process of industrial and import delicensing and then shifted to
further trade liberalization, financial sector reform and tax reform. Prior to 1991, capital flows to
India predominately consisted of aid flows, commercial borrowings, and nonresident Indian
deposits. Direct investment was restricted, foreign portfolio investment was channeled almost
exclusively into a small number of public sector bond issues, and foreign equity holdings in
Indian companies were not permitted (Chopra and others, 1995). However, this development
strategy of both inward-looking and highly interventionist, consisting of import protection,
complex industrial licensing requirements etc underwent radical changes with the liberalization
policies of 1991.
The post reform period really eased India’s struggles with regard to external sector. This is
evident from the RBI data summarizing the BOP in current account and capital account. The
current account which measures all transactions including exports and imports of goods and
services, income receivable and payable abroad, and current transfers from and to abroad
remained almost negative throughout the post reform period except for the three financial years.
Until 2000-01, the current account deficit that comprises both trade balance and the invisible
balance, remained stagnant and stood around $ 5000 million. However, for the first time since
1991, the current account recorded surplus in its account during three consecutive financial years
from 2001-02. The deficit in current account continued to occur from 2004-05 onwards and the
growth rate was comparatively faster.
The recent crisis of 2008 affected the trade performance of India in a large way. Indian economy
had been growing robustly at an annual average rate of 8.8 per cent for the period 2003-04 to
2007-08. Concerned by the inflationary pressures, Reserve Bank of India (RBI) increased the

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interest rates, which resulted in a slowdown of India’s trade flows prior to the Lehman crisis
(Kumar and Alex, 2009). The trade flows, which are one of the important channels through
which India was affected during the recent global crisis of 2008, started to collapse from late
2008. Merchandise trade, software exports and remittances declined in absolute terms in
response to the exogenous external shock.
A sharp improvement was seen in the outcome during 2013-14 with the CAD being contained at
US$ 32.4 billion as against US$ 88.2 billion and US$ 78.2 billion respectively in 2012-13 and
2011-12. The stress in India’s BoP, which was observed during 2011-12 as a fallout of the euro
zone crisis and inelastic domestic demand for certain key imports, continued through 2012-13
and the first quarter of 2013-14. Capital flows (net) to India, however, remained high and were
sufficient to finance the elevated CAD in 2012-13, leading to a small accretion to reserves of
US$ 3.8 billion. A large part of the widening in the levels of the CAD in 2012-13 could be
attributed to a rise in trade deficit arising from a weaker level of exports and a relatively stable
level of imports. The rise in imports owed to India’s dependence on crude petroleum oil imports
and elevated levels of gold imports since the onset of the global financial crisis. The levels of
non-petroleum oil lubricant (PoL) and non-gold and silver imports declined in 2012-13 and
2013-14.
Capital flows (net) moderated sharply from US$ 65.3 billion in 2011-12 and US$ 92.0 billion in
2012-13 to US$ 47.9 billion in 2013-14. This moderation in levels essentially reflects a sharp
slowdown in portfolio investment and net outflow in ‘short-term credit’ and ‘other capital’.
However, there were large variations within quarters in the last f iscal, which is explained partly
by domestic and partly by external factors. In the latter half of May 2013, the communication by
US Fed about rolling back its programme of asset purchases was construed by markets as a sign

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of imminent action and funds began to be withdrawn from debt markets worldwide, leading to a
sharp depreciation in the currencies of EMEs. Those countries with large CADs saw larger
volumes of outflows and their currencies depreciated sharply. As India had a large trade def icit
in the first quarter, these negative market perceptions led to sharper outflows in the foreign
institutional investors (FIIs) investment debt segment leading to 13.0 per cent depreciation of the
rupee between May 2013 and August 2013.
The government swiftly moved to correct the situation through restrictions in non-essential
imports like gold, customs duty hike in gold and silver to a peak of 10 per cent, and measures to
augment capital flows through quasi-sovereign bonds and liberalization of external commercial
borrowings. The RBI also put in place a special swap window for foreign currency non-resident
deposit (banks) [(FCNR (B)] and banks’ overseas borrowings through which US$ 34 billion was
mobilized. Thus, excluding one-off receipts, moderation in net capital inflows was that much
greater in 2013-14.
The one-off flows arrested the negative market sentiments on the rupee and in tandem with
improvements in the BoP position, led to a sharp correction in the exchange rate and a net
accretion to reserves of US$ 15.5 billion for 2013-14.
Current account developments in 2012-13
After registering strong growth in both imports and exports in 2011-12, merchandise trade (on
BoP basis) evidenced a slowdown in 2012-13 consisting of a decline in the levels of exports
from US$ 309.8 billion in 2011-12 to US$ 306.6 billion and a modest rise in the level of imports
to reach US$ 502.2 billion. This resulted in a rise in trade def icit f rom US$ 189.8 billion in
2011-12 to US$ 195.7 billion in 2012-13. The decline in exports owed largely to weak global
demand arising from the slowdown in advanced economies following the euro zone crisis, which

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could only be partly compensated by diversification of trade. Non-PoL imports declined only
marginally whereas PoL imports held up resulting in relatively stronger imports. Net imports of
PoL shot up to US$ 99.0 billion in 2011-12 initially on account of a spurt in crude oil prices
(Indian basket) and remained elevated at US$ 103.1 billion and US$ 102.4 billion in the next two
years. Similarly, gold and silver imports rose to a peak of US$ 61.6 billion in 2011-12 and
moderated only somewhat in 2012-13. Hence the wider and record high trade deficit in 2012-13.
With relatively static levels of net inflow under services and transfers, which are the two major
components (at about US$ 64 billion each), it was the net outflow in income (mainly investment
income), which explained the diminution in level of overall net invisibles balance. Net invisibles
surplus was placed at US$ 107.5 billion in 2012-13 as against US$ 111.6 billion in 2011-12.
Software services continue to dominate the non-factor services account and in 2012-13 grew by
4.2 per cent on net basis to yield US$ 63.5 billion with other services broadly exhibiting no
major shifts. In 2012-13, private transfers remained broadly at about the same level as in 2011-
12. Investment income which comprises repatriation of profits/interest, etc., booked as outgo as
per standard accounting practice, has been growing at a fast clip reflecting the large
accumulation of external financing of the CAD since 2011-12. Investment income (net) outgo
constituted 25.4 per cent of the CAD in 2012-13.
With trade deficit continuing to be elevated and widening somewhat and net invisibles balance
going down, the CAD widened from US$ 78.2 billion in 2011-12 to US$ 88.2 billion in 2012-13.
As a proportion of GDP, the CAD widened from 4.2 per cent in 2011-12 to a historic peak of 4.7
per cent in 2012-13. This rise also owes to the fact that nominal GDP expressed in US dollar
terms remained at broadly the same level of US$ 1.8 trillion in both the years due to depreciation
in the exchange rate of the rupee.

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Current account developments in 2013-14
In terms of the major indicators, the broad trend witnessed since 2011-12 continued through to
the first quarter of 2013-14. With imports continuing to be at around US$ 120-130 billion per
quarter for nine quarters in a row and exports (except the last quarter of the two financial years)
below US$ 80 billion for most quarters, trade deficit remained elevated at around US$ 45 billion
or higher per quarter for nine quarters till April-June 2013. The widening of the trade deficit in
the first quarter mainly owed to larger imports of gold and silver in the first two months of 2013-
14. In tandem with developments in the globe of a market perception of imminence of tapering
of asset purchases by the US Fed, the widening of the trade deficit led to a sharp bout of
depreciation in the rupee. This essentially reflected concerns about the sustainability of the CAD
in India. The government and RBI took a series of coordinated measures to promote exports,
curb imports particularly those of gold and non-essential goods, and enhance capital f lows.
Consequently, there has been significant improvement on the external front. (The Mid-Year
Economic Analysis 2013-14 of the Ministry of Finance contains a detailed analysis of
sustainability concerns and measures taken.)
The measures taken led to a dramatic turnaround in the BoP position in the latter three quarters
and for the full fiscal 2013-14. There was significant pick-up in exports to about US$ 80 billion
per quarter and moderation in imports to US$ 114 billion per quarter in the latter three quarters.
This led to significant contraction in the trade deficit to US$ 30-33 billion per quarter in these
three quarters. Overall this resulted in an export performance of US$ 318.6 billion in 2013-14 as
against US$ 306.6 billion in 2012-13; a reduction in imports to US$ 466.2 billion from US$
502.2 billion in 2012-13; and a reduction in trade def icit to US$ 147.6 billion, which was lower

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by US$ 48 billion from the 2012-13 level. As a proportion of GDP, trade deficit on BoP basis
was 7.9 per cent of GDP in 2013-14 as against 10.5 per cent in 2012-13.
A decomposition of the performance of trade deficit in 2013-14 vis-à-vis 2012-13 indicates that
of the total reduction of US$ 48.0 billion in trade deficit on BoP basis, reduction in imports of
gold and silver contributed approximately 47 per cent, reduction in non- PoL and non-gold
imports constituted 40 per cent, and change in exports constituted 25 per cent. Higher imports
under PoL and non-DGCI&S (Directorate General of Commercial Intelligence and Statistics)
imports contributed negatively to the process of reduction to the extent of 12 per cent in 2013-14
over 2012-13.
Net invisibles surplus remained stable at US$ 28-29 billion per quarter resulting in overall net
surplus of US$ 115.2 for 2013-14. Software services improved modestly from US$ 63.5 billion
in 2012-13 to US$ 67.0 billion in 2013-14. Non-factor services however went up from US$ 64.9
billion in 2012-13 to US$ 73.0 billion partly on account of business services turning positive in
all quarters with net inflows of US$ 1.3 billion in 2013-14 as against an outflow of US$ 1.9
billion in 2012-13. Business services have earlier been positive in 2007-08 and 2008-09. Private
transfers improved marginally to US$ 65.5 billion in 2013-14 from US$ 64.3 billion in 2012-13.
However, investment income outgo was placed at US$ 23.5 billion in 2013-14 as against US$
22.4 billion in 2012-13. There has been an elevation in the levels of gross outflow in recent
quarters reflecting the large levels of net international investment position (IIP), which is an
outcome of elevated levels of net financing requirements in 2011-12 and 2012-13. As an
outcome of the foregoing development in the trade and invisibles accounts of the BoP, the CAD
moderated sharply in 2013-14 and was placed at US$ 32.4 billion as against US$ 88.2 billion in
2012-13. In terms of quarterly outcome, the CAD was US$ 21.8 billion in April-June 2013 and

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moderated to around US$ 5.2 billion in July-September 2013, US$ 4.1 billion in October-
December 2013, and further to US$ 1.3 billion in January-March 2014. As a proportion of GDP,
the CAD was 1.7 per cent in 2013-14, which when adjusted for exchange rate depreciation
compares favorably with the levels achieved in the pre-2008 crisis years.
In terms of macroeconomic identity, the resource expenditure imbalance in one sector needs to
be financed through recourse to borrowing from other sectors and the persistence of high CAD
requires adequate net capital/financial flows into India. Any imbalance in demand and supply of
foreign exchange, even if frictional or cyclical, would lead to a change in the exchange rate of
the rupee. For analytical purposes, it would be useful to classify these flows in a 2X2 scheme in
terms of short-term and long term, and debt and non-debt flows. This scheme of classification
can be analyzed in terms of the nature of flows as stable or volatile.
In the hierarchy of preference for financing stable investment flows like foreign direct
investment (FDI) and stable debt flows like external assistance, external commercial borrowings
(ECBs), and NRI deposits which entail rupee expenditure that is locally withdrawn rank high.
The most volatile flow is the FII variety of investment, followed by short-term debt and FCNR
deposits. While FII on a net yearly basis has remained more or less positive since the 2008 crisis,
it has large cyclical swings and entails large volumes in terms of gross flows to deliver one unit
of net inflow.
Given this, it can be seen that post-1990 and prior to the global financial crisis, broadly the CAD
remained at moderate levels and was easily financed. In fact the focus of the RBI immediately
prior to the crisis was on managing the exchange rate and mopping up excess capital flows. Post-
2008 crisis, the CAD has remained elevated at many times the pre-2008 levels.

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In 2012-13, net capital inflows were placed at US$ 92.0 billion and were led by FII inflows (net)
of US$ 27.6 billion and short-term debt (net) of US$ 21.7 billion. There were, besides, large
overseas borrowings by banks together indicating the dependence on volatile sources of
financing. On a yearly basis, FII (net) flows remained at high levels post-2008 crisis on account
of the fact that foreign investors had put faith in the returns from emerging economies, which
exhibited resilience to the global crisis in 2009. There was some diminution in net inflows in
2011-12 on account of the euro zone crisis. On an intra-year basis, there was significant change
in FII flows due to perceptions of changing risks which had a knock-on effect on the exchange
rate of the rupee given the large financing need.
While the declining trend in net flows under ECB since 2010-11 continued in 2012-13, growing
dependence on trade credit for imports was reflected in a sharp rise in net trade credit availed to
US$ 21.7 billion in 2012-13 from US$ 6.7 billion in 2011-12. In net terms, capital inflows
increased significantly by 40.9 per cent to US$ 92.0 billion (4.9 per cent of GDP) in 2012-13 as
compared to US$ 65.3 billion (3.5 per cent of GDP) during 2011-12. Capital inflows were
adequate for financing the higher CAD and there was net accretion to foreign exchange reserves
to the extent of US$ 3.8 billion in 2012-13. However, intra-year in the first three quarters, though
there were higher flows quarter-on-quarter, the levels of net capital flows fell short or were
barely adequate for financing the CAD but in the fourth quarter while the levels of net capital
flows plummeted, the CAD moderated relatively more sharply leading to a reserve accretion of
US$ 2.7 billion.
Capital/Finance account in 2013-14
Outcomes in 2013-14 were a mixed bag. The higher CAD in the first quarter of 2013-14 was
financed to a large extent by capital flows; but the moderation observed in the fourth quarter of

22. 22 | P a g e
2012-13 continued through 2013-14. The communication by the US Fed in May 2013 about its
intent to roll back its assets purchases and market reaction thereto led to a sizeable capital
outflow from forex markets around the world. This was more pronounced in the debt segment of
FII. In the event, even though there was a drastic fall in the CAD in July-September 2013, net
capital inflows became negative leading to a large reserve drawdown of US$ 10.4 billion in that
quarter. FDI net inflows continued to be buoyant with steady inflows into India backed by low
outgo of outward FDI in the first two quarters. In the third quarter, while there was turnaround in
the flows of FIIs and copious inflows under NRI deposits in response to the special swap facility
of the RBI and banks’ overseas borrowing programme, there was some diminution in the levels
of other flows. This led to a reserve accretion of US$ 19.1 billion in the third quarter
notwithstanding that the copious proceeds of the special swap windows of the RBI directly
flowed to forex reserves of the RBI. In the fourth quarter, while FDI inflow slowed, higher
outflow on account of overseas FDI together with outflow of short term credit moderated the net
capital inflows into India. Thus for the year as a whole, net capital inflow was placed at US$
47.9 billion as against US$ 92.0 billion in the previous year.
While net FDI was placed at US$ 21.6 billion, portfolio investment (mainly FII) at US$ 4.8
billion, ECBs at US$ 11.8 billion, and NRI deposits at US$ 38.9 billion, there were signif icant
outflows on account of short-term credit at US$ 5.0 billion, banking capital assets at US$ 6.6
billion, and other capital at US$ 10.8 billion. The net capital inflows in tandem with the level of
CAD led to a reserve accretion of US$ 15.5 billion on BoP basis in 2013-14. The accretion to
reserves on BoP basis helped in increasing the level of foreign exchange reserves above the US$
300 billion mark at end March 2014.

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India’s BOP during 1990-91 to 2013-14 (value in US $ million)
Year Current account
balance
Capital Account
balance
Overall Balance
1990-91 -9680 7188 -2492
1991-92 -1178 3777 2599
1992-93 -3526 2936 -590
1993-94 -1159 9694 8535
1994-95 -3369 9156 5787
1995-96 -5912 4690 -1222
1996-97 -4619 11412 6793
1997-98 -5499 10010 4511
1998-99 -4038 8260 4222
1999-00 -4698 11100 6402
2000-01 -2666 8535 5868
2001-02 3400 8357 11757
2002-03 6345 10640 16985
2003-04 14083 17338 31421
2004-05 -2470 28629 26159
2005-06 -9902 24954 15052
2006-07 -9565 46171 36606
2007-08 -15737 107901 92164
2008-09 -27915 7835 -20079
2009-10 -38180 51622 13441
2010-11 -45945 58996 13050
2011-12 -78155 65324 -12832
2012-13 -88163 91989 -3826
2013-14 -32397 47905 -15508
Source: Reserve Bank of India, www.rbi.org
BOP CRISIS IN INDIA
Crisis of 1956-57
From 1947 till 1956-57, the India had a current account surplus. By the end of the first plan, the
Trade deficit was Rs. 542 Crore and Net Invisibles was Rs. 500 Crore, thus giving a BoP deficit
in Current Account worth Rs. 42 Crore. From this time onwards, the trade deficit increased from
3.8% of the GDP at market prices to 4.5% of GDP (at Market Prices). The result was an

24. 24 | P a g e
imposition of the exchange controls. This was the first BoP crisis, ever India faced, after
independence.
Crisis of 1966
In 1965, when India was at War with Pakistan, the US responded by suspension of aid and
refusal to renew its PL-480 agreement on a long term basis. The idea of US as well as World
Bank was to induce India to adopt a new agricultural policy and devalue the rupee. Thus, the
Rupee was devalued by 36.5% in June 1966. This was followed by a substantial rationalization
of the tariffs and export subsidies in an expectation of inflow of the foreign aid. The BoP
improved, but not because of inflow of foreign aid but because of the decline in imports.
After the 1966-67, the BoP of India remained comfortable till 1970s. The first oil shock of 1973-
74 was absorbed by the Indian Economy due to buoyant exports. After that there was an
expansion of the international trade.
Crisis of 1990-91:
BoP crisis had its origin from the fiscal year 1979-80 onwards. By the end of the 6th plan,
India’s BoP deficit (Current account) rose to Rs. 11384 crore. It was the mid of 1980s when the
BoP issue occupied the centre position in India’s macroeconomic management policy. The
second Oil shock of 1979 was more severe and the value of the imports of India became almost
double between 1978-78 and 1981-82. From 1980 to 1983, there was global recession and
India’s exports suffered during this time.
The trade deficit was not been offset by the flow of the funds under net invisibles. Apart from the
external assistance, India had to meet its colossal deficit in the current account through the
withdrawal of SDR and borrowing from IMF under the extended facility arrangement. A large
part of the accumulated foreign exchange fund was used to offset the BoP.

25. 25 | P a g e
During the 7th plan, between 1985-86 and 1989-90, India’s trade deficit amounted to Rs. 54, 204
Crore. The net invisible was Rs. 13157 Crore and India’s BoP was Rs. 41047 Crore. India was
under a sever BoP crisis. In 1991, India found itself in her worst payment crisis since 1947. The
things became worse by the 1990-91 Gulf war, which was accompanied by double digit inflation.
India’s credit rating got downgraded. The country was on the verge of defaulting on its
international commitments and was denied access to the external commercial credit markets. In
October 1990, a Net Outflow of NRI deposits started and continued till 1991.
The only option left to fulfil its international commitments was to borrow against the security of
India’s Gold Reserves. The prime Minister of the country was Chandra Shekhar and Finance
Minister was Yashwant Sinha. The immediate response of this Caretaker government was to
secure an emergency loan of $2.2 billion from the International Monetary Fund by pledging 67
tons of India’s gold reserves as collateral. This triggered the wave of the national sentiments
against the rulers of the country. India was called a “Caged Tiger”.
On 21 May 1991, Rajiv Gandhi was assassinated in an election rally and this triggered a
nationwide sympathy wave securing victory of the Congress.
The new Prime Minister was P V Narsimha Rao, who was Minister of Planning in the Rajiv
Gandhi Government and had been Deputy Chairman of the Planning Commission. He along with
Finance Minister Manmohan Singh started several reforms which are collectively called
“Liberalization”. This process brought the country back on the track and after that India’s
Foreign Currency reserves have never touched such a “brutal” low.

26. 26 | P a g e
In 1991, the following measures were taken:
In 1991, Rupee was once again devaluated.
Due to the currency devaluation the Indian Rupee fell from 17.50 per dollar in 1991 to 45
per dollar in 1992.
The Value of Rupee was devaluated 23%.
Industries were delicensed.
Import tariffs were lowered and import restrictions were dismantled.
Indian Economy was opened for foreign investments.
Market Determined exchange rate system was introduced.
LERMS
In the Union Budget 1992-93, a new system named LERMS was started. LERMS stands for
“Liberalized Exchange Rate Management”. The LERMS was introduced from March 1, 1992
and under this, a system of double exchange rates was adopted.
Under LERMS, the exporters could sell 60% of their foreign exchange earning to the authorized
Foreign Exchange dealers in the open market at the open market exchange rate while the
remaining 40% was to be sold compulsorily to RBI at the exchange rates decided by RBI.
Another important features of LERMS was that the Government was providing the foreign
exchange only for most essential imports. For less important imports, the importers had to
arrange themselves from the open market.
Thus, we see that LERMS was introduced with twin objectives of building up the Foreign
Exchange Reserves and discourage imports. The Government was successful in this.

27. 27 | P a g e
Rangarajan Panel for Correcting BoP
The Report of the High Level Committee on Balance of Payments, of which Dr. Rangarajan was
the Chairman, was submitted in June 1993. The important recommendations of this panel were
as follows:
A realistic exchange rate and a gradual relaxation of the restrictions on the current account
should go hand in hand.
Current account deficit of 1.6% of GDP should be treated as a ceiling.
Government should be cautious of extending concessions or facilities to the Foreign Investors.
The concessions were more to the foreign investors than to the domestic players.
All external debts should be pursued on a prioritized on the basis of the Use on which the debt is
to be put.
No approval should be accorded for a commercial loan which has a maturity of less than 5 years.
There should be efforts so that Debt flows can be replaced by the equity flows.
The High Level Committee on Balance of Payments, 1993, chaired by Dr. C. Rangarajan,
recommended that the RBI should target a level of reserves that took into account liabilities that
may arise for debt servicing, in addition to imports of three months.
DEVELOPMENTS IN INDIA’S BOP DURING APRIL-JUNE 2014
• India’s current account deficit (CAD) narrowed sharply to US$ 7.8 billion (1.7 per cent
of GDP) in Q1 of 2014-15 from US$ 21.8 billion (4.8 per cent of GDP) in Q1 of 2013-14.
However, it was higher than US$ 1.2 billion (0.2 per cent of GDP) in Q4 of 2013-14. The lower
CAD was primarily on account of a contraction in the trade deficit contributed by both a rise in
exports and a decline in imports.

28. 28 | P a g e
• On a BoP basis, merchandise exports at US$ 81.7 billion increased by 10.6 per cent in Q1
of 2014-15 as against a decline of 1.5 per cent in Q1 of 2013-14.
• On the other hand, merchandise imports (on BoP basis) at US$ 116.4 billion moderated
by 6.5 per cent in Q1 of 2014-15 as against an increase of 4.7 per cent in Q1 of 2013-14. Decline
in imports was primarily led by a steep decline of 57.2 per cent in gold imports, which amounted
to US$ 7.0 billion, significantly lower than US$ 16.5 billion in Q1 of 2013-14. Notably, non-
gold imports recorded a modest rise of 1.3 per cent as against decline of 0.6 per cent in
corresponding quarter of last year reflecting some revival in economic activity.
• As a result, the merchandise trade deficit (BoP basis) contracted by about 31.4 per cent to
US$ 34.6 billion in Q1 of 2014-15 from US$ 50.5 billion in the corresponding quarter a year
ago.
• Net services receipts improved marginally in Q1 of 2014-15 on account of higher exports
of services. Net services at US$ 17.1 billion recorded a growth of 1.2 per cent in Q1 of 2014-15.
• Net outflow on account of primary income (profit, dividend and interest) amounting to
US$ 6.7 billion in Q1 of 2014-15 was higher than that of US$ 4.8 billion in the Q1 of 2013-14 as
well as in the preceding quarter (US$ 6.4 billion). In Q1 of 2014-15, gross private transfer
receipts at US$ 17.5 billion, however, were marginally lower as compared with the
corresponding quarter of 2013-14. In fact, in Q1 of 2013-14, private transfers had shown a
significant increase of around 6 per cent over the preceding quarter, possibly responding
positively to the rupee depreciation.
• In the financial account, on net basis, both foreign direct investment and portfolio
investment recorded inflows in Q1 of 2014-15. While net inflow on account of portfolio

29. 29 | P a g e
investment was US$ 12.4 billion as against an outflow of US$ 0.2 billion in Q1 of 2013-14, net
FDI inflow was substantially higher at US$ 8.2 billion (US$ 6.5 billion in Q1 of 2013-14).
• ‘Loans’(net) availed by deposit taking corporations (commercial banks) witnessed an
outflow of US$ 2.6 billion in Q1 of 2014-15 owing to higher repayments of overseas borrowings
and a build-up of their overseas foreign currency assets. Under ‘currency & deposits’, net
inflows of NRI deposits amounted to US$ 2.4 billion in Q1 of 2014-15 as compared to US$ 5.5
billion in Q1 of 2013-14. The amount of loans (net) of other sectors (i.e., external commercial
borrowings) at US$ 1.7 billion was much higher than US$ 0.9 billion in Q1 of 2013-14. After
recording a net outflow in the three preceding quarters, net trade credits and advances recorded a
net inflow of US$ 0.2 billion albeit lower than that of US$ 2.5 billion in Q1 of 2013-14.
• On a BoP basis, there was a net accretion of US$ 11.2 billion to India’s foreign exchange
reserves in Q1 of 2014-15 as against a drawdown of US$ 0.3 billion in Q1 of 2013-14 (Table 1).
Major Items of India's Balance of Payments
(US$ Billion)
Apr-Jun 2014 (P) Apr-Jun 2013 (PR)
Credit Debit Net Credit Debit Net
A. Current Account 139.2 147.0 -7.8 130.9 152.7 -21.8
1. Goods 81.7 116.4 -34.6 73.9 124.4 -50.5
Of which:
POL 15.8 40.8 -25.0 14.2 39.2 -25.0
2. Services 37.6 20.5 17.1 36.5 19.7 16.9
3. Primary Income 2.3 9.0 -6.7 2.5 7.4 -4.8
4. Secondary Income 17.6 1.1 16.4 18.0 1.3 16.7
B. Capital Account and
Financial Account
147.3 138.6 8.6 135.1 114.2 20.9
Of which:
Change in Reserve
(Increase (-)/Decrease (+))
11.2 -11.2 0.3 0.3

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C. Errors & Omissions (-)
(A+B)
-0.8 0.9
P: Preliminary; PR: Partially Revised
Note: Total of subcomponents may not tally with aggregate due to
rounding off.
Measures of Correcting in Adverse Balance of Payment
1. Trade Policy Measures: Expanding, Exports and Restraining Imports:
Trade policy measures to improve the balance of payments refer to the measures adopted to
promote exports and reduce imports. Exports may be encouraged by reducing or abolishing
export duties and lowering the interest rate on credit used for financing exports. Exports are also
encouraged by granting subsidies to manufacturers and exporters.
Besides, on export earnings lower income tax can be levied to provide incentives to the exporters
to produce and export more goods and services. By imposing lower excise duties, prices of
exports can be reduced to make then competitive in the world markets.
On the other hand, imports may be reduced by imposing or raising tariffs (i.e., import duties) on
imports of goods. Imports may also be restricted through imposing import quotas, introducing
licenses for imports. Imports of some inessential items may be totally prohibited.
Before the economic reforms carried out since 1991 India had been following all the above
policy measures to promote exports and restrict imports so as to improve its balance of payments
position. But they had not achieved much success in their aim to correct balance of payments
disequilibrium. Therefore, India had to face great difficulties with regard to balance of payments.

31. 31 | P a g e
At long last, economic crisis caused by persistent deficits in balance of payments forced India to
introduce structural reforms to achieve a long-lasting solution of balance of payments problem.
2. Expenditure-Reducing Policies:
The important way to reduce imports and thereby reduce deficit in balance of payments is to
adopt monetary and fiscal policies that aim at reducing aggregate expenditure in the economy.
The fall in aggregate expenditure or aggregate demand in the economy works to reduce imports
and help in solving the balance of payments problem.
The two important tools of reducing aggregate expenditure are the use of:
(1) Tight monetary policy and (2) Contractionary fiscal policy.
Tight Monetary Policy:
Tight monetary is often used to check aggregate expenditure or demand by raising the cost of
bank credit and restricting the availability of credit. For this bank rate is raised by the Central
Bank of the country which leads to higher lending rates charged by the commercial banks.
This discourages businessmen to borrow for investment and consumers to borrow for buying
durable consumers goods. This therefore leads to the reduction in investment and consumption
expenditure. Besides, availability of credit to lend for investment and consumption purposes is
reduced by raising the cash reserve ratio (CRR) of the banks and also undertaking of open
market operations (selling Government securities in the open market) by the Central Bank of the
country.

32. 32 | P a g e
This also tends to lower aggregate expenditure or demand which will helps in reducing imports.
But there are limitations of the successful use of monetary policy to check imports, especially in
a developing country like India.
This is because tight monetary policy adversely affects investment increase in which is necessary
for accelerating economic growth. If a developing country is experiencing inflation, tight
monetary policy is quite effective in curbing inflation by reducing aggregate demand.
This will help in reducing aggregate expenditure and, depending on the income propensity to
import, will curtail imports. Besides, tight monetary policy helps to reduce prices or lower the
rate of inflation. Lower price level-or lower inflation rate will curb the tendency to import, both
on the part of businessmen and consumers.
But when a developing country like India is experiencing recession or slowdown in economic
growth along with deficits in balance of payments, use of tight monetary policy that reduces
aggregate expenditure or demand will not help much as it will adversely affect economic growth
and deepen economic recession. Therefore, in a developing country, monetary policy has to be
used along with other policies such as an appropriate fiscal policy and trade policy to tackle the
problem of disequilibrium in the balance of payments.
Contractionary Fiscal Policy:
Appropriate fiscal policy is also an important means of reducing aggregate expenditure. An
increase in direct taxes such as income tax will reduce aggregate expenditure. A part of reduction
in expenditure may lead to decrease in imports. Increase in indirect taxes such as excise duties
and sales tax will also cause reduction in expenditure.

33. 33 | P a g e
The other fiscal policy measure is to reduce Government expenditure, especially unproductive or
non-developmental expenditure. The cut in Government expenditure will not only reduce
expenditure directly but also indirectly through the operation of multiplier.
It may be noted that if tight monetary and Contractionary fiscal policies succeed in lowering
aggregate expenditure which causes reduction in prices or lowering the rate of inflation, they will
work in two ways to improve the balance of payments.
First, fall in domestic prices or lower rate of inflation will induce people to buy domestic
products rather than imported goods.
Second, lower domestic prices or lower rate of inflation will stimulate exports. Fall in imports
and rise in exports will help in reducing deficit in balance of payments.
However, it may be emphasized again that the method of reducing expenditure through
Contractionary monetary and fiscal policies is not without limitations. If reduction in aggregate
demand lowers investment, this will adversely affect economic growth.
Thus, correction in balance of payments may be achieved at the expense of economic growth.
Further, it is not easy to reduce substantially government expenditure and impose heavy taxes as
they are likely to affect incentives to work and invest and invite public protest and opposition.
We thus see that correcting the balance of payments through Contractionary fiscal policy is not
an easy matter.
3. Expenditure – Switching Policies: Devaluation:

34. 34 | P a g e
A significant method which is quite often used to correct fundamental disequilibrium in balance
of payments is the use of expenditure-switching policies. Expenditure switching policies work
through changes in relative prices. Prices of imports are increased by making domestically
produced goods relatively cheaper.
Expenditure switching policies may lower the prices of exports which will encourage exports of
a country. In this way by changing relative prices, expenditure-switching policies help in
correcting disequilibrium in balance of payments.
The important form of expenditure switching policy is the reduction in foreign exchange rate of
the national currency, namely, devaluation. By devaluation we mean reducing the value or
exchange rate of a national currency with respect to other foreign currencies. It should be
remembered that devaluation is made when a country is under fixed exchange rate system and
occasionally decides to lower the exchange rate of its currency to improve its balance of
payments.
However, even in the present flexible exchange rate system, the value of a currency or its
exchange rate as determined by demand for and supply of it can fall. Fall in the value of a
currency with respect to foreign currencies is described as depreciation. If a country permits its
currency to depreciate without taking effective steps to check it, it will have the same effects as
devaluation.
As a result of reduction in the exchange rate of a currency with respect to foreign currencies, the
prices of goods to be exported fall, whereas prices of imports go up. This encourages exports and
discourages imports.

35. 35 | P a g e
With exports so stimulated and imports discouraged, the deficit in the balance of payments will
tend to be reduced. Thus policy of devaluation is also referred to as expenditure switching policy
since as a result of reduction of imports, people of a country switches their expenditure on
imports to the domestically produced goods.
It may be noted that as a result of the lowering of prices of exports, export earnings will increase
if the demand for a country’s exports is price elastic (i.e., ep > 1). And also with the rise in prices
of imports the value of imports will fall if a country’s demand for imports is elastic. If demand of
a country for imports is inelastic, its expenditure on imports will rise instead of falling due to
higher prices of imports.
This is because the demand for bulk of our traditional exports was not very elastic and also we
could not reduce our imports despite their higher prices. However devaluation of July 1991
proved quite successful as after it our exports grew at a rapid rate for some years and growth of
imports remained within safe limits.
4. Exchange Control:
Finally, there is the method of exchange control. We know that deflation is dangerous; devalu-
ation has a temporary effect and may provoke others also to devalue. Devaluation also hits the
prestige of a country.
These methods are, therefore, avoided and instead foreign exchange is controlled by the
government. Under it, all the exporters are ordered to surrender their foreign exchange to the
central bank of a country and it is then rationed out among the licensed importers. None else is

36. 36 | P a g e
allowed to import goods without a licence. The balance of payments is thus rectified by keeping
the imports within limits.
After the Second War World a new international institution ‘International Monetary Fund (IMF)’
was set up for maintaining equilibrium in the balance of payments of member countries for a
short term. IMF also advises member countries how to correct fundamental disequilibrium in the
balance of Payments when it does arise. It may, however, be mentioned here that no country now
needs to be forced into deflation (and so depression) to root out the causes underlying disequilib-
rium as had to be done under the gold standard. On the contrary, the IMF provides a mechanism
by which changes in the rates of foreign exchange can be made in an orderly fashion.
Conclusion:
In short, correction of disequilibrium calls for a judicious combination.
No reliance can be placed on any single tool. There is room for more than one approach and for
more than one device. But the application of the tools depends on the nature of the
disequilibrium.
References/Bibliography:
 en.wikipedia.org/wiki/Balance_of_payments/
 www.investopedia.com/articles/03/060403.asp
 www.economicshelp.org/blog/glossary/balance-payments/
 Economic Survey (2013-14), http://indiabudget.nic.in
 Reserve Bank of India, www.rbi.org
 Search Engine:- Google.com