BALANCE OF PAYMENTS G ROUP M EMBERS Priyanka Naik43 Roshan Namboodiri44 Virat Panchal45 Nikhil Pethkar46 Munal Rakhangi47 Kiran Rawat48 B ALANCE O F P AYMENT Definition Systematic Record Of Economic transactions between Residents of a country and Rest of the World. IMPORTANCE OF BALANCE OF PAYMENTS (BOP) Demand and Supply of currency Confirm trend in economys international trade Confirms exchange rate of the currency Indicate policy shift T HE G ENERAL R ULE IN BOP A CCOUNTING Foreign currency earned Credited Foreign currency expended - Debited C OMPONENTS OF A BOP STATEMENT Current Account Capital Account Change in reserve fund and monetary gold Balance Of Payment C URRENT A CCOUNT AND I TS C OMPONENTS Current Account Imports Invisibles Trade Balance Exports C APITAL A CCOUNT T HE R ESERVE A CCOUNT Three accounts: IMF, SDR, & Reserve and Monetary Gold The IMF account contains purchases (credits) and re-purchase (debits) from International Monetary Fund Special Drawing Rights (SDRs) are a reserve asset created by IMF and allocated from time to time to member countries TRENDS IN INDIAS BALANCE OF PAYMENTS Also used to settle international payments between monetary authorities of two different countries A country, like India, which is on the path of development generally, experiences a deficit balance of payments situation. This is because such a country requires imported machines, technology and capital equipments in order to successfully launch and carry out the programme of industrialization FIRST PLAN Favorable monsoon Rapid Industrialization Balance of payment during the first plan- Rs. 42 crores SECOND PLAN Heavy deficit in the balance of trade - Rs crores Increase in industrial imports Decision to restrict imports and expand exports THIRD PLAN Heavy amount had to be paid by India in the form of interest payments on loans Improved exports. FOURTH PLAN The main objectives of the fourth plan was self- reliance The government restricted imports and succeeded in expanding exports. FIFTH PLAN Increase in the exports surplus on account of invisibles From onwards, India started experiencing very adverse balance of payments Colossal deficit in the current account was met through withdrawals and borrowings from IMF SIXTH PLAN The annual average current account deficit - Rs.2,600 crores The trade deficit was 3.3 per cent of GDP Current account deficit was 1.4 per cent of GDP SEVENTH PLAN Average volume growth exceeded 7 per cent The net invisible earnings in financing trade deficit 63% Sixth Plan 29.5 % Seventh Plan The average current account deficit increased to 2.4 percent of GDP DEVELOPMENT SINCE In , India became more open, market driven by liberalized economy ,export earnings, accounted for nearly 90 per cent of the value of imports Exports recorded a growth of 20 per cent in dollar terms C ONTD . The surplus on the invisible account doubled Foreign currency reserves $1,205 million 1990 $19,386 million 1994 C AUSES F OR BOP D IS - EQUILIBRIUM Economic factors Political factors Sociological factors I NDIA ' S F OREIGN T RADE : (I N US$ MILLION ) In $Million In Rs. Crore Exports Growth / (%) Imports Growth / (%) Trade Balance Item R 1 2 1Exports 4,65,748 2Imports 6,95,412 Trade Balance (1-2) -2,29,664 3Invisibles Net 1,85,927 A.Current Account Balance -43,737 1Foreign Investment 68,782 2External Assistance 7,592 3Commercial Borrowings 10,505 4Short term Credit 16,300 5Banking Capital 5,795 6Rupee Debt Service-2,557 7Other Capital 5,548 B.Total Capital Account 1,11,965 C. Errors & Omissions -2,332 D.Overall Balance (A+B+C) 65,896 E. IMF, Net 0 F Reserves and Monetary Gold Monetary Movements (F+G) -65,896 T HANK Y OU