BALANCE OF PAYMENT

Presented By:
Nitish.K
Bimal Raj
Amal Raj
Anto Thomas
Krishnaprasad
Solaman Sunny
Arun Kumar Mandal
Ujjwala Mundawad
Vasundhara
Shameem

Balance Of Payment
Statistical

record of countrys international

transactions over a certain period of time

Presented

in the form of double-entry book keeping.

According

to Kindelberger:-

Balance of payment is a systematic record of all

economic transactions between the residents of the
reporting country and the residents of foreign
countries during a given period of time.

As per IMF
BOP

includes
Transactions in goods & services and income
between an economy and the rest of the world
Changes of ownership and other changes in
that countrys monetary gold, SDRs, and claims
on and liabilities to the rest of the world
Unrequited transfers and counterpart entries
that are needed to balance

Characteristics of BOP
Systematic

record of all economic transactions between

one country and rest of the world.

Record

of transactions pertaining to a period of time.

Usually annual statement.

Adopts

a double entry book keeping system.

It

has two sides, debit and credit. Payments are recorded

on the debit side and receipts on the credit side.

It

contains two sets of accounts

1.

Current account

2.

Capital account

Factors influencing BOP

Cost

of production.

Demand
Cost

and supply.

and availability.

Exchange

rate movements.

Domestic

business.

Trade

agreements.

Price.
External

pressures

Importance of BOP
Forecasting

a countrys market potential, especially in the

short run.
Indicator

of pressure on a countrys foreign exchange rate,

and the potential of a firm trading with or investing.

Signal

the removal of controls over payment of dividends

and interests, license fees, royalty fees, or other cash
disbursements to foreign firms or investors.

Signal

increased riskiness of lending to particular

countries.

Disequilibrium in BOP
In

disequilibrium when there is either a surplus or a

deficit in the balance of payments.

Deficit:-

The receipts from the foreigners fall below our

payments to foreigners. Also called an unfavorable
balance.

Surplus:-

The receipts of the country exceed its

payments. Also called as a favorable balance.

Types of disequilibrium in BOP

Structural

Disequilibrium:- Due to structural changes in

the economy affecting demand and supply relations in
commodity and factor market.

Cyclical

disequilibrium:- Due to changes in the trade

cycles.
Monetary

disequilibrium:- This takes place on account

of inflation and deflation.

Technological

disequilibrium:- Various technological

changes involve inventions and innovations of new goods

Contd..
Short

Run Disequilibrium:- This arises when the

country lends or borrows internationally.

Secular

or Long run Disequilibrium:- This

prevails for long period of time, when the
disequilibrium is persistent long run oriented.

Components of BOP
The

Current Account

The

Capital Account

The

Official Reserve Account

STRUCTURE OF BOP
BOP
Current Account
Trade

Transfer /
factor
Payments
Invisibles

Capital Account

FDI/FIIs
Portfolio
Investments
NRE/NRI
A/cs

Indian BOP
INDIA'S BOP (VALUES IN US$)
250000
200000
150000
100000
50000
0
-50000
-100000
-150000
current account balance

capital account balance

overall balance balance

Export Vs Import
600000
499533

500000

400000

502237
466216

383481

300644
300000

309774
256159

200000
182442
100000

EXPORT

IMPORT

306581

318607

Current Account

Capital Account

Capital Account
1)EXTERNAL RESISTANCE
4)BANKING CAPITAL OF NRD

2)EXTERNAL COMMERCIAL
5)FDI

3)SHORT TERM DEBT

90000
80000
70000
60000
50000
40000
30000
20000
10000
0

2009-10

2010-2011

2011-12

2012-13

2013-14

Foreign Reserves
Forex ReservesorFX reserves
Assets held bycentral banksandmonetary authorities
Located in the capital account.
Only include foreign banknotes, bank deposits, treasury bills,
and short and long-term government secureties.
Adds gold reserves, special drawing rights(SDRs), and
International Monetary Fund (IMF) reserve positions.
Important part of the International Investment Position of a
country.
Allow a central bank to purchase the domestic currencyconsidered a liability for the central bank

Contd..

Causes for Indias BOP deficit

Huge

development & investment programs

Population
Huge

growth

external borrowing

Inflation

MEASURES TO CORRECT ADVERSE BOP

1.

EXPORT LED GROWTH

Instead

of exporting Raw material should export

finished goods

Reduction
Export

in export duties

quality product

2 Reduction in imports
Import

of only essential items

Exchange

control

Substitutes

for imported items

Contd..
3 Miscellaneous
Popualtion
Decrease
Control

control

in consumption

of smuggling

Contd..
We must convert this CAD Problem and Rupee Downslide situation

into an Opportunity, by taking strong Policy Measures over the next

3 Months speeding up Investments internally, bringing in Monthly
Performance Accountability Audit in all Govt Depts, taking all
Measures to double Indias Manufactured Goods Exports over the
next 4 Years, and creating Brand India value abroad. The Nation
should live the CREDO of doing International Commerce, for
generating Growth.

Thank You.