INDIA’S BALANCE OF TRADE AND BALANCE OF PAYMENT

PRESENTED BY:

PRAVEENA.L

II MBA ‘A’

BALANCE OF PAYMENT

Meaning :

The exports and imports involve finance i.e. receipts and payments in money. An account of all receipts and payments is termed as Balance of Payments (BOP).

The balance of payment record is maintained in a standard double-entry book-keeping method. International transactions enter in to the record as credit or debit. The payments received from foreign countries enter as credit and payments made to other countries as debit.

Definition:

According to Kindle berger, "The balance of payments of a country is a systematic record of all economic transactions between the residents of the reporting country and residents of foreign countries during a given period of time".

STRUCTURE OF BALANCE OF PAYMENT

1. Trade account balance:

It is the difference between exports and imports of goods, usually referred as visible or tangible items.

Trade account balance tells as whether a country enjoys a surplus or deficit on that account.

The Balance of Trade is also referred as the 'Balance of Visible Trade' or 'Balance of Merchandise Trade'.

2. Current account balance:

It is difference between the receipts and payments on account of current account which includes trade balance.

The current account includes export of services, interests,

profits, dividends and unilateral receipts from abroad, and the import of services, interests, profits, dividends and unilateral Payments to abroad.

There can be either surplus or deficit in current account.

The deficit will take place when the debits are more than credits or when payments are more than receipts and the current account surplus will take place when the credits are more than debits.

3. Capital account balance:

It is difference between the receipts and payments on account of capital account.

The capital account involves inflows and outflows relating to investments, short tern borrowings/lending, and medium term to long term borrowing/lending.

There can be surplus or deficit in capital account.

The surplus will take place when the credits are more than debits and the deficit will take place when the debits are more than credits.

4. Foreign exchange reserves:

It shows the reserves which are held in the form of foreign currencies usually in hard currencies like dollar, pound etc., gold and Special Drawing Rights (SDRs).

They increase when the individual has a surplus in his transactions and decrease when he has a deficit.

When a country enjoys a net surplus both in current account & capital account, it increases foreign exchange reserves.

5. Errors and omission:

The errors may be due to statistical discrepancies & omission may be due to certain transactions may not be recorded.

For eg: A remittance by an Indian working abroad to India may not yet recorded, or a payment of dividend abroad by an MNC operating in India may not yet recorded or so on. The errors and omissions amount equals to the amount necessary to balance both the sides.

DISEQUILIBRIUM IN BOP

  Though the credit and debit are written balanced

in the balance of payment account, it may not remain balanced always. Very often, debit exceeds credit or the credit exceeds debit causing an imbalance in the balance of payment account. Such an imbalance is called the disequilibrium. Disequilibrium may take place either in the form of deficit or in the form of surplus.

CAUSES:

1. POPULATION GROWTH

2. DEVELOPMENT PROGRAMME

3. DEMONSTRATION EFFECT

4. NATURAL FACTORS

5. CYCLICAL FLUCTUATION

6. INFLATION

7. POOR MARKETING STRATEGY

8. FLIGHT OF CAPITAL

9. GLOBALISATION

Types :

1. Structural disequilibrium

2. Cyclical disequilibrium

3. Technological disequilibrium

4. Short run disequilibrium

5. Long run or secular disequilibrium

6. Monetary disequilibrium

BALANCE OF TRADE

The difference between a country's imports and its exports.

Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad.

Credit items include exports, foreign spending in the domestic economy and foreign investments in the domestic economy.

APPENDIX TABLE 17: INDIA’S EXPORTS AND IMPORTS

(US $ million)

Exports of principal commodities

Commodity/GroupApril-March

2007-08 2008-09 2009-10R 2010-11 P

1 2 3 4 5

I. Primary Products 27,551.9 25,335.4 26,396.5 35,358.7

A. Agricultural & Allied Products 18,432.1 17,534.9 17,734.1 24,696.1B. Ores & Minerals 9,119.8 7,800.5 8,662.5 10,662.6

II. Manufactured Goods 102,978.8 123,148.9 115,180.7 168,098.1

A. Leather & Manufactures 3,502.5 3,556.0 3,361.1 3,789.3

B. Chemicals & Related Products 21,193.8 22,708.1 22,908.8 28,979.6

C. Engineering Goods 37,365.2 47,285.6 38,271.3 68,784.1D. Textiles & Textile Products 19,425.7 20,016.4 19,853.0 23,312.2

E. Gems & Jewellery 19,678.7 27,955.2 28,996.3 40,790.7F. Handicrafts 508.2 301.0 224.8 233.1

III. Petroleum Products 28,363.1 27,547.0 28,192.0 41,918.0

IV. Others 4,010.4 6,768.2 8,982.1 9,027.3Total Exports (I+II+III+IV) 162,904.2 182,799.5 178,751.4 254,402.1

Imports of principal commodities

I. Bulk Imports 112,744.7 138,791.1 125,315.2 150,489.7

A. Petroleum, Petroleum Products & Related Material 79,644.5 93,671.7 87,135.9 106,068.2

B. Bulk Consumption Goods 4,600.3 4,975.3 9,012.7 8,720.3C. Other Bulk Items 28,499.9 40,144.0 29,166.5 35,701.1

II. Non-Bulk Imports 138,694.4 160,042.8 163,057.8 202,085.4

A. Capital Goods 70,110.5 71,833.1 65,865.0 71,627.2B. Mainly Export Related Items 20,768.3 31,930.8 31,270.0 49,639.4

C. Others 47,815.7 56,278.9 65,922.8 80,818.7

Total Imports (I+II) 251,439.2 298,833.9 288,372.9 352,575.0

P : Provisional.    R : Revised.

Source : DGCI & S.

YEARS EXPORT IMPORTTRADE BALANCE

2007-08 162904 251439 -88535

2008-09 182799 298833 -116034

2009-10 178751 288372 -109621

2010-11 254402 352575 -98173

INDIA’S BOT TREND 2007-2011

2007-08 2008-09 2009-10 2010-110

100000

200000

300000

400000

500000

600000

700000

TRADE BALANCEIMPORTEXPORT

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