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Presented By,

SAJISH V.S (17)

YUBEN JOSEPH (30)

CORRECTION OF DISEQUILIBRIUM IN

BALANCE OF PAYMENT

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BALANCE OF PAYMENT

Systematic and summarised record of a countryseconomic and financial transactions with the rest ofthe world over a period of time

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FACTORS FOR DISEQUILIBRIUM IN BOP

Economic factors

Development disequilibrium

Cyclical disequilibrium

Secular disequilibrium

Political factors

Social factors

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RECENT TRENDS

The year2001- 02, which recorded a current

account surplus for the first time in 23 years,

is a landmark year in the history of the BOP

of India.

This resulted from the vibrant trends in

increase of the invisibles over the past one

decade or so.

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HOWEVER

After 3 years of surplus, the current a/c reverted to theprevious situation with a deficit of $5.4 bn in

2004-

05.

This was caused by a 147% increase in merchandise tradedeficit which far outstripped the increase in invisiblesurplus.

continues to be in deficit.

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2009-10 (H1)

BoP data for FY 09-10, for exports and importsshowed substantial decline during April-Sept (H1) of09-10 vis--vis the corresponding period in 08-09.

Yet there has been improvement in the BoP

scenario during H1 of 2009-10 over H1 of 2008-09,reflected in higher net capital inflows and lowertrade deficit.

However, the invisible surplus declined andcurrent account deficit widened vis-a-vis the

corresponding period last year.

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TYPES OF ADJUSTMENTS

Automatic CorrectionDeliberate Measures

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Correction Of Disequilibrium

AUTOMATIC CORRECTION

If adverse BOP

fall in the external value of thedomestic currency

--So, exports will become cheaper and imports willbecome costlier

--this will restore BOP

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DELIBERATE MEASURES

Monetary measures

Trade measures Miscellaneous measures

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MONETARY MEASURES

MONETARY CONTRACTION

Reduces purchasing powerreduce demand fall in pricescheaperso more exports

DEVALUATION

Reduction of the official rate at which the currency is exchanged for

another currency. Devaluation makes exports goods cheaper .

EXCHANGE CONTROL

The recipients of foreign exchange, like exporter , are required to

surrender foreign exchange to government/central bank in exchange

for domestic currency. Thus the govt can control imports.

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TRADE MEASURES

EXPORT PROMOTION

Exports may be encouraged by reducing or abolishing export

duties, providing export subsidy, encouraging export

production and export marketing by giving monetary, fiscal,

physical and institutional incentives and facilities.

IMPORT PROMOTION

Imports may be controlled by imposing or enhancing import

duties, restricting imports through import quotas, licensing

and even prohibiting altogether the import of certain

inessential items.

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MISCELLANEOUS MEASURES

Foreign loans

Import substitution

Development of tourism

Export of services, BPOs, ITES, etc.

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CorrectionofBOP Disequilibrium

Automatic Correction Deliberate Measures

Monetary Measures

Contraction/Expansion

Devaluation/Revaluation

Exchange control

MiscellaneousmeasuresForeign loans

Import substitution

Development of tourism

Export of services, BPOs, ITES, etc

Trademeasures

Exportpromotion Importsubstitution

Abolition of duties Import duties

Export subsidies Import quotas

Export incentives Import Prohibition

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