balance of payment adjustment
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TABLE OF CONTENTS
Topics
BALANCE OF PAYMENTS2
BALANCE OF PAYMENTS ADJUSTMENT5
BOP ADJUSTMENT POLICIES7
BALANCE OF TRADE 8
BALANCE OF CURRENT ACCOUNT 9
THE OFFICIAL SETTLEMENT CONCEPT 11
THE CAPITAL ACCOUNT 12
ACCOMMODATING & AUTONOMOUS CAPITAL FLOWS14
BALANCE OF INVISIBLE TRADE 15
CAPITAL ACCOUNT CONVERTIBILITY (CAC) 19
IN THE ACCOUNTING SENSE THE BOP ALWAYS BALANCES! 22
DETAILED OUTLINE OF THE BOP STATEMENT & SUB ACCOUNTS 23
A DEFICIT IN THE BASIC BALANCE IS DESIRABLE OR
UNDESIRABLE!27
OFFICIAL RESERVES ACCOUNT 30
CONCLUSION 31
Bibliography 32
Annexure 33
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BALANCE OF PAYMENTS ADJUSTMENT
CONCEPT QUESTIONS
BALANCE OF PAYMENTS
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
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.
The definition given by RBI needs to be clarified further for the following points:
A. Economic TransactionsAn 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
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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 topay. [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].
3. An exchange of financial items e.g. purchase of foreign securities with payment in cash orby 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. ResidentThe 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.
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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
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 plusitem.
b) If a transaction involves spending of foreign currency it is a debit and is recorded as anegative 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 are:
A. Current AccountB. Capital AccountC. IMFD. SDR AllocationE. Errors & OmissionsF. Reserves and Monetary Gold
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Balance Of Payments Adjustment
Balance of Payments Adjustment Policies for the appropriate adjustment of imbalances of
payments, in connection with policies for international liquidity, have been widely discussed
since the end of World War I. Prior to that time it had been assumed that the gold standard
provided the necessary adjustment mechanism automatically. In recent years the issue has
acquired a particular urgency and has attracted a great deal of attention. However, in contrast to
the intensive investigation of the liquidity issue, there have actually been very few studies of the
state of adjustment policies. In view of the importance of this area for the conduct of
international economic relations by the United States as well as other countries, the National
Bureau has chosen adjustment policies as one of the topics for analysis in its program of
international economic studies.' This report investigates the recent pattern of balance-of-
payments adjustment policies. Determining the pattern of policies in actual use is an essential
part of evaluating the policies, arrangements, and institutions needed to improve the international
monetary mechanism and assure an optimal flow of international transactions. In particular, the
experience of other countries may help to indicate the potential of various policies which the
United States might employ, in its effort to reconcile maximum utilization of economic capacity
and a rapid rate of growth with the compelling need for balance-ofpayments adjustment. The
overall plan of the study, of which this is a preliminary report, is twofold. First, each individual
country will be analyzed separately in order to identify the policy reactions in the country.Following this, a synthesis of the individual studies will be attempted, in order 1 See Hal B.
Lary, Problems of the United States as World Trader and Banker, New York, National Bureau of
Economic Research, 1963; particularly pp. 113117.2 Balance-of-Payments Adjustment
Policies to search for any general pattern, or patterns, in the international monetary system as a
whole and to analyze the reasons for similarities or differences among countries. This latter part,
or over-all study, will take up such questions as whether the policies undertaken to adjust deficits
and surpluses in the balance of payments are symmetrical to each other, or whether deficits and
surpluses provoke different kinds of reactions; whether or not countries employ any strategy or
strategies which assign certain policy instruments to balance-of-payments adjustment while
reserving others for domestic targets; whether any general change in the policy pattern was
discernible over the period under consideration; and if variables such as the size of trade or
recent experiences with inflations and depressions explain differences in policy patterns among
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countries. Other questions of a similar nature will also be investigated. It must be emphasized
that the study of individual countries is subordinated to the ultimate purpose of an over-all
analysis of the international monetary system. The separate studies will thus follow a uniform
method, making it possible to incorporate them into a wider analysis later. In the process, much
specific information about each country will inevitably be lost. In particular, each individual
study does not purport to be a comprehensive description and analysis of all the policy actions
taken by the country in question to adjust balance-of-payments disturbances. Such a
comprehensive study of any single country would require much more attention than could be
given to individual cases in an analysis of the present nature. In the present study, the individual
patterns are, rather, presented with the aim of demarcating the most salient features of the
system. This approach involved selecting certain policies for observation and excluding others: it
led to a concentration on aggregative monetary and fiscal measures, with only scant attention to
other policies. The study may thus be described as being, essentially, the identification and
analysis of the pattern of use of financial policies for balance-of-payments adjustment. It is,
basically, a statistical undertaking. The analysis is aimed at discovering causal connections in
one direction: from imbalances of payments to policy measures. It starts out with the assumption
that, over time, a consistent association in the occurrence of a certain Introduction and Summary
3 development, or position, of the balance of payments (or of any other economic target), with
the movements of a policy variable indicates a causal relationship rather than a coincidence. The
study of time series of variables which indicate balance-of-payments disturbances and those
which represent policy instruments may thus reveal the policy reactions be they automatic
policy responses or ad hoc decisionsto imbalances of payments. The investigation of possible
associations is conducted by a number of methods; all of these are rather crude, primarily owing
to the small number of observations in each country and the large coverage of the study. Yet in
combination they appear to yield meaningful results. The present paper is an interim report on
the over-all study. It discusses, in Chapter 2, the methods and techniques of analysis, the
meaning of balance-of-payments "disturbances" and their identification, the nature of the policy
variables used for adjustment and the interpretation of an adjustment policy, and the possible
limitations of the study, its major deficiencies, and the qualifications which must be attached to
its conclusions. Chapters 3, 4, and 5 present, as a sample, the analyses of three countries: Japan,
Germany, and the Netherlands. At this stage of reporting, no similar sample could be offered of
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the analysis which will follow in the final report. International comparisons and implications for
the international monetary system as a whole must await the completion of all the intended
individual country studies. Of the three countries presented here, oneGermanydoes not
appear to have conducted any systematic policy of balance-of-payments adjustment. During
about half of the period coveredthroughout most of the 1950'sGermany had a practically
uninterrupted surplus in its balance of payments. Yet economic policy does not seem to have
responded by taking an expansive directiona response that would have been required to restore
balance-of-payments equilibrium. The continuous and substantial accumulation of foreign-
exchange reserves was apparently regarded as a favorable development rather than as a
disturbance which should be corrected. In other periods too, fluctuations in the balance-of-
payments position do not appear to have triggered adjustments of policy measures with any
consistency. In Germany financial policy thus seems to have been unresponsive, by and large, to
balance-of-payments developments.
Balance-of-Payments Adjustment Policies
In Japan and the Netherlands an entirely different pattern is revealed. Here, monetary policy
appears to be geared quite closely to fluctuations in the balance of payments. The working of the
monetary mechanism is not entirely similar in the two countries, but they share two major
elements: the discount rate and money supply react in a consistent way to balance-of-payments
disturbances. In times of a deficit, the discount rate is raised and the rate of expansion of money
supply tends to fall; with balance-of-payments surpluses, the tendencies are reversed. These are
responses which work in the direction of balance-of-payments adjustment. Although changes in
the discount rate are of course decided upon directly by the respective central banks, the changes
in money supply take place automatically as a result of movements of foreign-exchange reserves.
Commercial banks partly offset the automatic impact on the credit basis by increasing their
borrowing from the central bank when foreign-exchange reserves fall and repaying their debts
when reserves rise. In the Netherlands,this offsetting is even helped by a policy of lowering theminimum-reserve ratio of commercial banks when the balance of payments is in deficit, and
raising the ratio at times of surpluses. Both in Japan and in the Netherlands, commercial bank
credit thus fulfills only a minor role in the adjustment process, and central bank credit even
tends, almost invariably, to move contrary to the direction of movement of foreign-exchange
reserves. By some definitions, this may be termed a "disadjusting," or "neutralizing," monetary
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policy, yet the discount rate and money supply do tend to move in an adjusting direction. By the
definition suggested in this study, this outcome amounts to an adherence to the classical "rules of
the game."
In neither Japan nor the Netherlands does fiscal policy appear to be attuned to balance-of-payments adjustment. In all three countries, fiscal policy is apparently considered a tool which
cannot, or should not, respond to balance-of-payments fluctuations. Nor does fiscal policy appear
to form generally part of a policy "mix," by which domestic targets are assigned to fiscal policy
whereas monetary policy is reserved for balance-of-payments adjustments, although a few
episodes in Japan and the Netherlands do tend to follow this pattern. In the main, the principle of
a balanced budget was followed in all three countries, and budgetary policy does not appear to
have been generally used for short-term targets.
BALANCE OF TRADE
Balance of trade may be defined as the difference between the value of goods and services sold
to foreigners by the residents and firms of the home country and the value of goods and services
purchased by them from foreigners. In other words, the difference between the value of goods
and services exported and imported by a country is the measure of balance of trade.
If two sums (1) value of exports of goods and services and (2) value of imports of goods and
services are exactly equal to each other, we say that there is balance of trade equilibrium or
balance; if the former exceeds the latter, we say that there is a balance of trade surplus; and if the
later exceeds the former, then we describe the situation as one of balance of trade deficit. Surplus
is regarded as favourable while deficit is regarded as unfavourable.
The above mentioned definition has been given by James. E. Meade a Nobel Prize British
Economist. However, some economists define balance of trade as a difference between the value
of merchandise (goods) exports and the value of merchandise imports, making it the same as the
Goods Balance or the Balance of Merchandise Trade. There is n doubt that the balance of
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merchandise trade is of great significance to exporting countries, but still the BOT as defined by
J. E. Meade has greater significance.
Regardless of which idea is adopted, one thing is certain i.e. that balance of trade is a national
injection and hence it is appropriate to regard an active balance (an excess of credits over debits)
as a desirable state of affairs. Should this then be taken to imply that a passive trade balance (an
excess of debits over credits) is necessarily a sign of undesirable state of affairs in a country?
The answer is no. Because, take for example, the case of a developing country, which might be
importing vast quantities of capital goods and technology to build a strong agricultural or
industrial base. Such a country in the course of doing that might be forced to experience passive
or adverse balance of trade and such a situation of passive balance of trade cannot be described
as one of undesirable state of affairs. This would therefore again suggest that before drawing
meaningful inferences as to whether passive trade balances of a country are desirable or
undesirable, we must also know the composition of imports which are causing the conditions of
adverse trade balance.
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.
BOP on current account is also referred to as Net Foreign Investment because the sum represents
the contribution of Foreign Trade to GNP.
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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.
BASIC BALANCE
The basic balance was regarded as the best indicator of the economys position vis --vis other
countries in the 1950s and the 1960s. It is defined as the sum of the BOP on current account
and the net balance on long term capital, which were considered as the most stable elements in
the balance of payments. A worsening of the basic balance [an increase in a deficit or a reduction
in a surplus or even a move from the surplus to deficit] was seen as an indication of deterioration
in the [relative] state of the economy.
The short term capital account balance is not included in the basic balance. This is perhaps for
two main reasons:
a) Short term capital movements unlike long term capital movements are relatively volatile andunpredictable. They move in and out of the country in a period of less than a year or even
sooner than that. It would therefore be improper to treat short term capital movements on the
same footing as current account BOP transactions which are extremely durable in nature.
Long term capital flows are relatively more durable and therefore they qualify to be treated
along side the current account transactions to constitute basic balance.
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b) In many cases, countries dont have a separate short term capital account as they constitute apart of the Errors and Omissions Account.
A deficit on the basic balance could come about in various ways, which are not mutuallyequivalent. E.g. suppose that the basic balance is in deficit because a current account deficit is
accompanied by a deficit on the long term capital account. The long term capital outflow will, in
the future, generate profits, dividends and interest payments which will improve the current
account and so, ceteris paribus, will reduce or perhaps reduce the deficit. On the other hand, a
basic balance surplus consisting of a deficit on current account that is more than covered by long
term borrowings from abroad may lead to problems in future, when profits, dividends etc are
paid to foreign investors.
THE OFFICIAL SETTLEMENT CONCEPT
An alternative approach for indicating, a deficit or surplus in the BOP is to consider the net
monetary transfer that has been made by the monetary authorities is positive or negative, which
is the so calledsettlement concept.
If the net transfer is negative (i.e. there is an outflow) then the BOP is said to be in deficit, but if
there is an inflow then it is surplus. The basic premise is that the monetary authorities are the
ultimate financers of any deficit in the balance of payments (or the recipients of any surplus).
These official settlements are thus seemed as the accommodating item, all other being
autonomous.
The monetary authorities may finance a deficit by depleting their reserves of foreign currencies,
by borrowing from the IMF or by borrowing from other foreign monetary authorities. The later
source is of particular importance when other monetary authorities hold the domestic currency as
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a part of their own reserves. A country whose currency is used as a reserve currency (such as the
dollars of US) may be able to run a deficit in its balance of payments without either depleting its
own reserves or borrowing from the IMF since the foreign authorities might be ready to purchase
that currency and add it to its own reserves. The settlements approach is more relevant under a
system of pegged exchange rates than when the exchange rates are floating.
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 stockeither 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.
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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
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 firms country, and as a
positive item in the capital account for the other country. That capital outflows appear as a
negative item in a countrys 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 purchasers country (and as a positive item
in the accounts of the sellers country).
The net value of the balances of direct and portfolio investment defines the balance on capital
account.
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ACCOMMODATING & AUTONOMOUS CAPITAL FLOWS
Economists have often found it useful to distinguish between autonomous and accommodating
capital flows in the BOP. Transactions are said to Autonomous if their value is determined
independently of the BOP. Accommodating capital flows on the other hand are determined bythe net consequences of the autonomous items. An autonomous transaction is one undertaken for
its own sake in response to the given configuration of prices, exchange rates, interest rates etc,
usually in order to realise a profit or reduced costs. It does not take into account the situation
elsewhere in the BOP. An accommodating transaction on the other hand is undertaken with the
motive of settling the imbalance arising out of other transactions. An alternative nomenclature is
that capital flows are above the line (autonomous) or below the line (accommodating).
Obviously the sum of the accommodating and autonomous items must be zero, since all entries
in the BOP account must come under one of the two headings. Whether the BOP is in surplus or
deficit depends on the balance of the autonomous items. The BOP is said to be in surplus if
autonomous receipts are greater than the autonomous payments and in deficit if viceaversa.
Essentially the distinction between both the capital flow lies in the motives underlying a
transaction, which are almost impossible to determine. We cannot attach the labels to particular
groups of items in the BOP accounts without giving the matter some thought. For example a
short term capital movement could be a reaction to difference in interest rates between two
countries. If those interest rates are largely determined by influences other than the BOP, then
such a transaction should be labelled as autonomous. Other short term capital movements may
occur as a part of the financing of a transaction that is itself autonomous (say, the export of some
good), and as such should be classified as accommodating.
There is nevertheless a great temptation to assign the labels autonomous and accommodating
to groups of item in the BOP. i.e. to assume, that the great majority of trade in goods and of long
term capital movements are autonomous, and that most short term capital movements are
accommodating, so that we shall not go far wrong by assigning those labels to the various
components of the BOP accounts. Whether that is a reasonable approximation to the truth may
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depend in part on the policy regime that is in operation. For example what is an autonomous item
under a system of fixed exchange rates and limited capital mobility may not be autonomous
when the exchange rates are floating and capital may move freely between countries.
BALANCE OF INVISIBLE TRADE
Just as a country exports goods and imports goods a country also exports and imports what are
called as services (invisibles). The service account records all the service exported and imported
by a country in a year. Unlike goods which are tangible or visible services are intangible.
Accordingly services transactions are regarded as invisible items in the BOP. They are invisible
in the sense that service receipts and payments are not recorded at the port of entry or exit as in
the case with the merchandise imports and exports receipts. Except for this there is no
meaningful difference between goods and services receipts and payments. Both constitute
earning and spending of foreign exchange. Goods and services accounts together constitute the
largest and economically the most significant components in the BOP of any country.
The service transactions take various forms. They basically include 1) transportation, banking,
and insurance receipts and payments from and to the foreign countries, 2) tourism, travel services
and tourist purchases of goods and services received from foreign visitors to home country and
paid out in foreign countries by home country citizens, 3) expenses of students studying abroad
and receipts from foreign students studying in the home country, 4) expenses of diplomatic and
military personnel stationed overseas as well as the receipts from similar personnel who are
stationed in the home country and 5) interest, profits, dividends and royalties received from
foreign countries and paid out to foreign countries. These items are generally termed as
investment income or receipts and payments arising out of what are called as capital services.
Balance of Invisible Trade is a sum of all invisible service receipts and payments in which the
sum could be positive or negative or zero. A positive sum is regarded as favourable to a country
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and a negative sum is considered as unfavourable. The terms are descriptive as well as
prescriptive.
BALANCE OF VISIBLE TRADE
Balance of visible trade is also known as balance of merchandise trade, and it covers all
transactions related to movable goods where the ownership of goods changes from residents to
non-residents (exports) and from non-residents to residents (imports). The valuation should be on
F.O.B basis so that international freight and insurance are treated as distinct services and not
merged with the value of goods themselves. Exports valued on F.O.B basis are the credit entries.
Data for these items are obtained from the various forms that the exporters have fill and submit
to the designated authorities. Imports valued at C.I.F are the debit entries. Valuation at C.I.F.
though inappropriate, is a forced choice due to data inadequacies. The difference between the
total of debits and credits appears in the Net column. This is the Balance of Visible Trade.
In visible trade if the receipts from exports of goods happen to be equal to the payments for the
imports of goods, we describe the situation as one of zero goods balance. Otherwise there
would be either a positive or negative goods balance, depending on whether we have receipts
exceeding payments (positive) or payments exceeding receipts (negative).
ERRORS AND OMISSIONS
Errors and omissions is a statistical residue. It is used to balance the sta tement 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
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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 wit 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
dollar, as gold, and as Special Deposit Receipts (SDRs) 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 countrys 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.
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UNILATERAL TRANSFERS
Unilateral transfers or unrequited receipts, are receipts which the residents of a country receive
for free, without having to make any present or future payments in return. Receipts from
abroad are entered as positive items, payments abroad as negative items. Thus the unilateraltransfer account includes all gifts, grants and reparation receipts and payments to foreign
countries. Unilateral transfer consist of two types of transfers: (a) government transfers (b)
private transfers.
Foreign economic aid or assistance and foreign military aid or assistance received by the home
countrys government (or given by the home government to foreign governments) constitutes
government to government transfers. The United States foreign aid to India, for BOP 9but a debit
item in the US BOP). These are government to government donations or gifts. There no well
worked out theory to explain the behaviour of this account because these flows depend upon
political and institutional factors. The government donations (or aid or assistance) given to
government of other countries is mixed bag given for either economic or political or
humanitarian reasons. Private transfers, on the other hand, are funds received from or remitted to
foreign countries on persontoperson basis. A Malaysian settled in the United States remitting
$100 a month to his aged parents in Malaysia is a unilateral transfer inflow item in the Malaysian
BOP. An American pensioner who is settled after retirement in say Italy and who is receiving
monthly pension from America is also a private unilateral transfer causing a debit flow in the
American BOP but a credit flow in the Italian BOP. Countries that attract retired people from
other nations may therefore expect to receive an influx of foreign receipts in the form of pension
payments. And countries which render foreign economic assistance on a massive scale can
expect huge deficits in their unilateral transfer account. Unilateral transfer receipts and payments
are also called unrequited transfers because as the name itself suggests the flow is only in onedirection with no automatic reverse flow in the other direction. There is no repayment obligation
attached to these transfers because they are not borrowings and lendings but gifts and grants
exchanged between government and people in one country with the governments and peoples in
the rest of the world.
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ILLUSTRATE THE ITEMS WHICH FALL UNDER CAPITAL ACCOUNT AND
CURRENT ACCOUNT WITH EXAMPLES.
Credits Debits
Current Account Current Account
1. Merchandise Exports (Sale of Goods) 1. Merchandise Imports (purchase of Goods)2. Invisible Exports (Sale of Services) 2. Invisible Imports (Purchase of Services)
a. Transport services sold abroad a. Transport services purchased fromabroad
b. Insurance services sold abroad b. Insurance services purchasedc. Foreign tourist expenditure in country c. Tourist expenditure abroadd. Other services sold abroad d. Other services purchased from abroade. Incomes received on loans and
investments abroad.e. Income paid on loans and investments
in the home country.
3. Unilateral Transfers 3. Unilateral Transfersa. Private remittances received from
abroada. Private remittances abroad
b. Pension payments received fromabroad
b. Pension payments abroadc. Government grants received from
abroadc. Government grants abroad.
Capital Account Capital Account
3. Foreign long-term investments in the homecountry (less redemptions and repayments)
3. Long-term investments abroad (lessredemptions and repayments)
a. Direct investments in the home country a. Direct Investments abroadb. Foreign investments in domestic
securitiesb. Investments in foreign securities
c. Other investments of foreigners in thehome country
c. Other investments abroadd. Foreign Governments loans to the
home country.d. Government loans to foreign countries
4. Foreign short-term investments in the homecountry.
4. Short-term investments abroad.
CAPITAL ACCOUNT CONVERTIBILITY (CAC)
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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 viceaversa 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.6. An outward oriented development strategy and sufficient incentives for export growth.
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DESCRIPTIVE QUESTIONS
DISCUSS THE RELEVANCE / IMPORTANCE OF THE BOP STATEMENTS?
BOP statistics are regularly compiled, published and are continuously monitored by companies,
banks and government agencies. A set of BOP accounts is useful in the same way as a motion
picture camera. The accounts do not tell us what is good or bad, nor do they tell us what is
causing what. But they do let us see what is happening so that we can reach our own conclusions.
Below are 3 instances where the information provided by BOP accounting is very necessary:
1. Judging the stability of a floating exchange rate system is easier with BOP as the record ofexchanges that take place between nations help track the accumulation of currencies in the
hands of those individuals more willing to hold on to them.
2. Judging the stability of a fixed exchange rate system is also easier with the same record ofinternational exchange. These exchanges again show the extent to which a currency is
accumulating in foreign hands, raising questions about the ease of defending the fixed
exchange rate in a future crisis.
3. To spot whether it is becoming more difficult for debtor counties to repay foreign creditors,one needs a set of accounts that shows the accumulation of debts, the repayment of interest
and principal and the countries ability to earn foreign exchange for future repayment. A set of
BOP accounts supplies this information. This point is further elaborated below.
The BOP statement contains useful information for financial decision makers. In the short run,
BOP deficit or surpluses may have an immediate impact on the exchange rate. Basically, BOP
records all transactions that create demand for and supply of a currency. When exchange rates
are market determined, BOP figures indicate excess demand or supply for the currency and thepossible impact on the exchange rate. Taken in conjunction with recent past data, they may
conform or indicate a reversal of perceived trends. They also signal a policy shift on the part of
the monetary authorities of the country unilaterally or in concert with its trading partners. For
instance, a country facing a current account deficit may raise interest to attract short term capital
inflows to prevent depreciation of its currency. Countries suffering from chronic deficits may
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find their credit ratings being downgraded because the markets interpret the data as evidence that
the country may have difficulties its debt.
BOP accounts are intimately with the overall saving investment balance in a count rys national
accounts. Continuing deficits or surpluses may lead to fiscal and monetary actions designed to
correct the imbalance which in turn will affect exchange rates and interest rates in the country. In
nutshell corporate finance managers must monitor the BOP data being put out by government
agencies on a regular basis because they have both short term and long term implications for a
host of economic and financial variables affecting the fortunes of the company.
IN THE ACCOUNTING SENSE THE BOP ALWAYS BALANCES!
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. For instance, exports (like sales of a business) are
credits, and imports (like the purchases of a business) are debits. As in business accounting the
BOP records increases in assets (direct investment abroad) and decreases in liabilities
(repayment of debt) as debits, and decreases in assets (sale of foreign securities) and increases in
liabilities (the utilisation of foreign goods) as credits. An elementary rule that may assist in
understanding these conventions is that in such transactions it is the movement of a document,
not of the money that is recorded. An investment made abroad involves the import of a
documentary acknowledgement of the investment, it is therefore a debit. The BOP has one
important category that has no counter part or at least no significant counter part in business
accounting, i.e. international gifts and grants and other so called transfer payments.
In general credits may be conceived as receipts and debits as payments. However this is not
always possible. In particular the change in a countrys international reserves in gold and foreign
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exchange is treated as a debit if it is an increase and a credit if it is a decrease. The procedure is
to offset changes in reserves against changes in the other items in the table so that the grand total
is always zero, (except for errors and omissions).
A transaction entering the BOP usually has two aspects and invariably gives rise to two entries,one a debit and the other a credit. Often the two aspects fall in different categories. For instance,
an export against cash payment may result in an increase in the exporting countrys official
foreign exchange holdings. Such a transaction is entered in the BOP as a credit for exports and as
a debit for the capital account. Both aspects of a transaction may sometimes be appropriate to the
same account. For instance the purchase of a foreign security may have as its counter part
reduction in official foreign exchange holdings.
Thus it is clear that if we record all the entries in BOP in a proper way, debits and credits will
always be equal. So that in accounting sense the BOP will be in balance.
DETAILED OUTLINE OF THE BOP STATEMENT & SUB ACCOUNTS
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. A BOP statement (revised)
includes the following sub accounts, as shown in the table below.
Items Credits Debits Net
G. Current Account1. Merchandise
a. Privateb. Government2. Invisiblesa. Travelb. Transportationc. Insuranced. Investment Incomee. Government (not included elsewhere)f. Miscellaneous
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3. Transfer Paymentsa. Officialb. Private
Total Current Account (1+2+3)
H.
Capital Account2. Privatea. Long Termb. Short Term
3. Banking4. Official
a. Loansb. Amortisationc. Miscellaneous
Total Capital Account (1+2+3)
I.
IMFJ. SDR AllocationK. Capital Account, IMF & SDR Allocation (B+C+D)L. Total Current Account, Capital Account, IMF & SDR
Allocation (A+E)
M.Errors & OmissionsN. Reserves and Monetary Gold
Current Account
The current account includes all transactions which give rise to or use up national income. The
current account consists of two major items, namely, (a) merchandise export and imports and (b)
invisible imports and exports.
Merchandise exports i.e. sale of goods abroad, are credit entries because all transactions giving
rise to monetary claims on foreigners represent credits. On the other hand, merchandise imports,
i.e. purchase of goods abroad, are debit entries because all transactions giving rise to foreign
money claims on the home country represent debits. Merchandise exports and imports form the
most important international transactions of most of the countries.
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Invisible exports i.e. sale of services, are credit entries and invisible imports i.e. purchase of
services are debit entries. Important invisible exports include sale abroad of services like
insurance and transport etc. while important invisible imports are foreign tourist expenditures in
the home country and income received on loans and investment abroad (interests or dividends).
Transfers payments refer to unrequited receipts or unrequited payments which may be in cash or
in kind and are divided into official and private transactions. Private transfer payments cover
such transactions as charitable contributions and remittances to relatives in other countries. The
main component of government transfer payments is economic aid in the form of grants.
Capital Account
The capital account separates the non monetary sector from the monetary one, that is to say, the
trading or ordinary private business element in the economy together with the ordinary
institutions of central or local government, from the central bank and the commercial bank,
which are directly involved in framing or implementing monetary policies. The capital account
consists of long term and short term capital transactions. Capital outflow represents debit and
capital inflow represent credit. For instance, if an American firm invests rupees 100 million in
India, this transaction will be represented as a debit in the US BOP and a credit in the BOP of
India.
Other Accounts
The IMF account contains purchases (credits) and repurchases (debits) from the IMF. SDRs
Special Drawing Rightsare a reserve asset created by the IMF and allocated from time to time
to member countries. Within certain limitations it can be used to settle international payments
between monetary authorities of member countries. An allocation is a credit while retirement is a
debit. The Reserve and Monetary Gold account records increases (debits) and decreases (credits)
in reserve assets. Reserve assets consist of RBIs holdings of gold and foreign exchange (in the
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form of balances with foreign central banks and investment in foreign government securities)
and governments holding of SDRs. Errors and Omissions is a statistical residue. 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). 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.
HOW WILL YOU IDENTIFY A DEFICIT OR SURPLUS IN BALANCE OF
PAYMENTS? / MEANING OF DEFICIT AND SURPLUS IN THE BALANCE OF
PAYMENTS.
If the balance of payment is a double entry accounting record, then apart from errors and
omissions, it must always balance. Obviously, the terms deficit or surplus cannot refer to the
entire BOP but must indicate imbalance on a subset of accounts included in the BOP. The
imbalance must be interpreted in some sense as an economic disequilibrium.
Since the notion of disequilibrium is usually associated within a situation that calls for policy
intervention of some sort, it is important to decide what is the optimal way of grouping the
various accounts within the BOIP so that an imbalance in one set of accounts will give the
appropriate signals to the policy makers. In the language of an accountant e divide the entire
BOP into a set of accounts above the line and another set below the line. If the net balance
(credits-debits) is positive above the line we will say that there is a balance of payments
surplus; if it is negative e will say there is a balance of payments deficit. The net balance
below the line should be equal in magnitude and opposite in sign to the net balance above the
line. The items below the line can be said to be a compensatory nature they finance or
settle the imbalance above the line.
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The critical question is how to make this division so that BOP statistics, in particular the deficit
and surplus figures, will be economically meaningful. Suggestions made by economist and
incorporated into the IMF guidelines emphasis the purpose or motive a transaction, as a criterion
to decide whether a transaction should go above or below the line. The principle distinction
between autonomous transaction and accommodating or compensatory transactions.
Transactions are said to Autonomous if their value is determined independently of the BOP.
Accommodating capital flows on the other hand are determined by the net consequences of the
autonomous items. An autonomous transaction is one undertaken for its own sake in response to
the given configuration of prices, exchange rates, interest rates etc, usually in order to realise a
profit or reduced costs. It does not take into account the situation elsewhere in the BOP. An
accommodating transaction on the other hand is undertaken with the motive of settling the
imbalance arising out of other transactions. An alternative nomenclature is that capital flows are
above the line (autonomous) or below the line (accommodating). The terms balance of
payments deficit and balance of payments surplus will then be understood to mean deficit or
surplus on all autonomous transactions taken together.
The other measures of identifying a deficit or surplus in the BOP statement are:
Deficit or Surplus in the Current Account and/or Trade Account.
The Basic Balance which shows the relative deficit or surplus in the BOP.
A DEFICIT IN THE BASIC BALANCE IS DESIRABLE OR UNDESIRABLE!
The basic balance was regarded as the best indicator of the economys position vis --vis other
countries in the 1950s and the 1960s. It is defined as the sum of the BOP on current account
and the net balance on long term capital, which were considered as the most stable elements in
the balance of payments.
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A worsening of the basic balance [an increase in a deficit or a reduction in a surplus or even a
move from the surplus to deficit] is seen as an indication of deterioration in the [relative] state of
the economy. Thus it is very much evident that a deficit in the basic balance is a clear indicator
of worsening of the state of the countrys BOP position, and thus can be said to be undesirable at
the very outset.
However, on further thoughts, a deficit in the basic balance can also be understood to be
desirable. This can be explained as follows: A deficit on the basic balance could come about in
various ways, which are not mutually equivalent. E.g. suppose that the basic balance is in deficit
because a current account deficit is accompanied by a deficit on the long term capital account.
This deficit in long term capital account could be clearly observed in a developing countrys
which might be investing heavily on capital goods for advancement on the agricultural and
industrial fields. This long term capital outflow will, in the future, generate profits, dividends and
interest payments which will improve the current account and so, ceteris paribus, will reduce or
perhaps reduce the deficit.
Thus a deficit in basic balance can be desirable as well as undesirable, as it clearly depends upon
what is leading to a deficit in the long term capital account.
SHORT NOTES
BALANCE OF PAYMENTS
(Refer to Concept Questions)
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CURRENT ACCOUNT
The current account records exports and imports of goods and services and unilateral transfers.
Exports whether of goods or services are by convention entered as positive items in the account.
Imports accordingly are entered as negative items. Exports are normally calculated f.o.b i.e. cost
from transportation, insurance etc are not included whereas imports are normally calculated c.i.f.
i.e. transportation, insurance cost etc are included.
In many cases the payment for imports and exports will result in transfer of money between the
trading countries. For example a UK firm importing a good from US may settle its debt by
instructing its UK bank to make a payment to the US account of the exporter. This is not
necessarily the case however. If the UK firm holds a bank account in the US, then it may make
payment to the US exporter from that account. In the former case the financial side of the
transaction will appear in the UK BOP account as part of the net change in UK foreign currency
reserves. In the later it will appear as the part of the capital account since the UK firm has
reduced its claims on the US bank.
BOP accounts usually differentiate between trades in goods and trade in services. The balance of
imports and exports of the former is referred to in the UK accounts as the balance of visible trade
in other countries it may be referred to as the balance of merchandise trade, or simply as the
balance of trade. The net balance of exports and imports of services is called the balance of
invisible trade in the UK statistics.
Invisible trade is a much more heterogeneous category than is visible trade. It helps in
distinguishing between factor and non-factor services. Trade in the later of which shipping,
banking and insurance services and payments by residents as tourists abroad are usually the most
important, is in economic terms little different from trade in goods. That is, exports and imports
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are flows of outputs whose values will be determined by the same variables that would affect the
demand and supply for goods. Factors services, which consist in the main of interest, profits and
dividends, are on the other hand payments for inputs. Exports and imports of such services will
depend in large part on the accumulated stock of past investment in and borrowing from foreign
residents.
Unilateral transfer forms a major part of the current account. It refers to unrequited receipts or
unrequited payments which may be in cash or in kind and are divided into official and private
transactions. Unilateral transfers or unrequited receipts, are receipts which the residents of a
country receive for free, without having to make any present or future payments in return.
Receipts from abroad are entered as positive items, payments abroad as negative items.
The net value of the balances of visible trade and of invisible trade and of unilateral transfers
defines the balance on current account.
CAPITAL ACCOUNT
(Refer to Concept Questions)
OFFICIAL RESERVES ACCOUNT
Official reserve account forms a special feature of the capital account. This account records the
changes in the part of the reserves of other countries that is held in the country concerned. These
reserves are held in three forms: in foreign currency, usually but not always the US dollars,
as gold, and as Special Deposit Receipts (SDRs) borrowed from the IMF. Note that the
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reserves do not have to be held by the country. Indeed most of the countries hold a proportion of
the reserves in accounts with foreign central banks.
The IMF account contains purchases (credits) and repurchases (debits) from the IMF. SDRs
Special Drawing Rightsare a reserve asset created by the IMF and allocated from time to time
to member countries. Within certain limitations it can be used to settle international payments
between monetary authorities of member countries. An allocation is a credit while retirement is a
debit. The Reserve and Monetary Gold account records increases (debits) and decreases (credits)
in reserve assets. Reserve assets consist of RBIs holdings of gold and foreign exchange (in the
form of balances with foreign central banks and investment in foreign government securities)
and governments holding of SDRs.
The change in the reserves account measures a nations surplus or deficit on its current and
capital account transactions by netting reserve liabilities from reserve assets. For example, a
surplus will lead to an increase in official holdings of foreign currencies and/or gold; a deficit
will normally cause a reduction in these assets.
For most of the countries, there is a correlation between balance-of-payments deficits and reserve
declines. A drop in reserves will occur, for instance, when a nation sells gold to acquire foreign
currencies that it can use to meet the deficit in the balance of payments.
Conclusion:
A country can run an overall BOP deficit or surplus by engaging in the official reserve
transactions. Official reserve assets are those financial assets that can be used as international
means of payments. Currently, official reserve assets comprise: (I) gold, (ii) foreign exchanges,
(iii) special drawing rights (SDRs), and (iv) reserve positions with the IMF. Foreign exchanges
are by far the most important official reserves. For example, an overall BOP deficit can be
supported by drawing down the central banks reserve holdings. Likewise, an overall BOP
surplus can be absorbed by adding to the central banks reserve holdings.
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BIBLIOGRAPHY
Balance of Payments
- Paul Madson
International Financial Management
- P G Apte
International Economics
- Lindert
International Economics
- Francis Chernuliam
International Economics
- C P Kindelberger
International Economics
- Geoffrey Reed
International Economics
- H G Mannur
Major Items of India's balance of Payments (April-March, 2008-09)(In $ million)
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April-March (2008-09) (P)
April-March (2007-08)(PR)
Exports 175,184 166,163
Imports 294,587 257,789
Trade Balance -119,403 -91,626
Invisibles, net 89,586 74,592Current Account Balance -29,817 -17,034
Capital Account* 9,737 109,198
Change in Reserves#(+ indicates increase;- indicates
decrease)
20,080 -92,164
Including errors & omissions; # On BoP basis excluding valuation; P: Preliminary, PR:
Partially revised. R: revised
SOURCE: Reserve Bank of India Report
INDIAs cumulative value of exports for the period April- June, 2009 was
$ 35432 million (Rs.172762 crore) as against $ 51545 million (Rs.214808 crore)registering a negative growth of 31.3 percent in Dollar terms and 19.6 percent in Rupeeterms over the same period last year. Again, the cumulative value of imports for theperiod April- June, 2009 was $ 50936 million (Rs.248171 crore) as against$ 80187 million (Rs.334191 crore) registering a negative growth of36.5 percent in Dollarterms and 25.7 percent in Rupee terms over the same period last year.
EXPORTS & IMPORTS (April-June, FY 2009-10)
In $ Million In Rs Crore
Exports including re-exports
2008-09 51545 214808
2009-10 35432 172762
Growth 2009-10/2008-
2009 (percent)-31.3 -19.6
Imports
2008-09 80187 334191
2009-10 50936 248171
Growth 2009-10/2008-
2009 (percent)-36.5 -25.7
Trade Balance
2008-09 -28642 -119383
2009-10 -15504 -75409
Figures for 2008-09 and 2009-10 are provisional
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The trade deficit for April- June, 2009 was estimated at $ 15504 million which was lowerthan the deficit at $ 28642 million during April- June, 2008.
Source: Federal Ministry of Commerce, Government of India
Inflows & Outflows from NRI Deposits and Local Withdrawals(In $ million)
Inflows Outflows Local Withdrawals
2006-07 (R) 19914 15593 132082007-08 (PR) 29401 29222 18919
April-March 2008-09(P)
37,089 32,799 20,617
P: Preliminary, PR: Partially revised. R: revised
SOURCE: Reserve Bank of India report, 2008-09
KEY INDICATORS OF INDIA'S BALANCE OF PAYMENTS
April-March
2008-09 2007-08 2006-07
Merchandize Trade
Exports ($ on BoP basis)Growth Rate (percent)
5.4 28.9 22.6
Imports ($ on BoP basis)Growth Rate (percent) 14.3 35.2 21.4
Crude Oil Prices, Per Barrel(Indian Basket)
82.4 79.5 62.4
Trade Balance ($ billion) -119.4 -91.6 -61.8
Invisibles
Net Invisibles ($ Billion) 89.6 74.6 52.2
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Net Invisibles Surplus/TradeDeficit (Percent)
75.0 81.4 84.5
Invisible Receipts/CurrentReceipts (Percent)
48.1 47.2 47.1
Services Recipts/Current
Receipts (Percent)
30.0 28.6 30.3
Private Transfers/CurrentReceipts (Percent)
13.7 13.8 12.7
Current Account
Current Receipts ($ Billion) 337.7 314.8 243.4
Current Payments ($ Billion) 367.6 331.8 253.0
Current Account Balance ($Billion)
--29.8 -17.0 -9.6
Capital Account
Gross Capital Inflows ($Billion)
302.5 433.0 233.3
Gross Capital Outflows ($Billion)
293.3 325.0 188.1
Net Capital Flows ($ Billion) 9.1 108.0 45.2
Net FDI/Net CapitalFlows (Percent)
191.3 14.3 17.0
Net Portfolio Investment/Netcapital Flows (Percent)
-153.4 27.4 15.6
Net ECBs/Net capitalFlows (Percent)
89.2 21.0 35.5
Reserves
Import Cover of Reserves (Inmonths)
10.3 14.4 12.5
Outstanding Reserves as at endperiod ($ Billion)
252.0 309.7 199.2
SOURCE: Reserve bank of India Report on Balance of Payment, December 2008
India's Merchandize Trade (2003-04 to 2008-09 (April-March)
Year Exports Growth(Percent)
Imports Growth(Percent)
2003-04 63.8 - 78.1 -
2004-05 83.5 30.8 111.5 42.7
2005-06 103.1 23.4 149.2 33.8
2006-07 126.3 22.5 185.6 24.4
2007-08 162.9 29.0 251.4 35.5
2008-09(April-March)
- 5.4 - 14.3
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SOURCE: Federal Ministry of Commerce, Government of India
Gross Capital Inflows and Outflows (In $ Million)
HEADS Gross Inflows Gross Out flows
April-March April-March
2008-09 P
2007-08
PR
2006-07 R 2008-09 P
2007-08
PR
2006-07 R
Foreign DirectInvestment
36,258 36838 23590 18,762 21437 15897
PortfolioInvestment
128,651 235924 109620 142,685 206368 102560
External Assistance 5,042 4241 3767 2,404 2127 1992ExternalCommercialBorrowings
15,382 30376 20883 7,224 7743 4780
NRI Deposits 37,089 29401 19914 32,799 29222 15593
Banking capitalexcluding NRDeposits
27,909 26412 17295 35,596 14834 19703
Short-term tradeCredits
39,734 48,911 29,992 45,529 31,728 23,380
Rupee Debt Service 0 0 0 101 121 162Other Capital 12,391 20904 8230 8,210 11434 4021
TOTAL 302,456 433007 233291 293,310 325014 188088
R: Revised; P: Preliminary; PR: Partially Revised
SOURCE: Reserve Bank of India Report on Balance of Payment, December 2008
Business Services (In $ Million)
Item Receipts Payments
April-March April-March
2008-
09 P2007-
08 PR2006-07 R 2008-
09 P2007-
08 PR2006-07 R
Trade Related 2,008 2233 1325 1,642 2285 1801
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Business &ManagementConsultancy
4,847 4433 4476 3,512 3653 3484
Architectural,Engineering & other
Technical
1,759 3144 3457 3,106 3173 3025
Maintenance ofOffices
2,980 2861 2638 3,283 3,496 4,032
Others 4,657 4100 2648 3,726 4,108 3,522
TOTAL 16,251 16771 14544 15,269 16715 15866
R: Revised; P:Preliminary; PR:
Partially Revised
SOURCE: Reserve Bank of India Report on Balance of Payment, December 2008
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