1. By Vaishali Padake

2.  It is a record of transactions done by resident
country with the rest of world.
 Resident country: India
 Sources of fund for nation: exports or
receipts of loans and investments, are
recorded as positive or surplus items.
 Uses of funds: imports or to invest in
foreign countries, are recorded as negative
or deficit items.

3. BOP
Current Account Capital Account Reserves
Gold
Trade FDI/FIIs Reserves
Transfer / Portfolio
factor Forex
Investments
Payments Reserves
NRE/NRI
Invisibles A/cs IMF Loans

4.  Current Account:-
 That part of balance of payments recording a nation’s
export and import of goods and services and transfer pay.
 Balance of trade,
 Net factor income,
 Net transfer payment.

5. Capital Account:-
That part of balance of payments that reflects net change in
national ownership of assets.
Capital Account = Foreign direct investment
+Portfolio investment
+Other investment

6. No. 41 : India’s Overall Balance of Payments US$ mn
Item 2006-07 2007-08 2008-09 2009-10
A. CURRENT ACCOUNT
I. MERCHANDISE -61,782 -91,467 -119,520 -118,374
II. INVISIBLES 52,217 75,731 91,605 79,991
Total Current Account (I+II) -9,565 -15,737 -27,915 -38,383
B. CAPITAL ACCOUNT
1. Foreign Investment (a+b) 14,753 43,326 5,785 51,167
2. Loans (a+b+c) 24,490 40,653 8,318 13,259
3. Banking Capital (a+b) 1,913 11,759 -3,246 2,084
4. Rupee Debt Service -162 -122 -100 -97
5. Other Capital 4,209 10,969 -3,990 -13,016
Total Capital Account (1 to 5) 45,203 106,585 6,768 53,397
C. Errors & Omissions 968 1,316 1,067 -1,573
D. Overall Balance (Total Current Account, 36,606 92,164 -20,080 13,441
Capital Account and Errors & Omissions)
E. Foreign Exchange Reserves (Increase - / -36,606 -92,164 20,080 -13,441
Decrease +)
of which SDR Allocation – -5,160
P: Preliminary PR: Partially Revised

7. USES OF BOP:-
 The BOP provides an extremely useful data for
the economic analysis of the country’s
weakness and strength as a partner in
international trade.
 BOP also reveals the changes in the
composition and magnitude of foreign trade.
 BOP also provides indications, future
repercussions of countries past trade
performances.

8.  Total receipts and total payments inequality shows
disequilibrium of balance of payments account
B=R–P
Where, B stands for balance of payments,
R denotes receipts from foreigners,
P stands for payments made to foreigners
 A country whose balance of payments is positive is
called as surplus country (R>P)
 A country whose balance of payments is negative is
called as deficit country (P>R)

9.  Cyclical disequilibrium: It occurs on account of trade
cycles. Cyclical fluctuations in demand are caused by
changes in Income, employment, output & price.
 Structural disequilibrium: It is caused because of
fluctuation in the demand based on changes in
tastes, fashions, habits, income, economic progress etc.
 Short – run disequilibrium: When a country borrows
or lends internationally, it will have short run
disequilibrium, as these are usually for short period.
 Long run disequilibrium: It occurs because of
accumulation of deficits or surpluses over a long
period.

10. Causes for India’s BOP deficit
• Huge development & investment programs :
Due to huge development and investment programs , Import
goes on increasing , requirement of capital for rapid
industrialization, while exports may not be boosted up to that
extent. Thus, there will be structural changes in the balance of
payments and structural equilibrium will result.

11. • Population growth: High population growth in
poor countries has adverse impact on their balance
of payments. Increase in the population increases
the needs of these countries for imports and
decreases the capacity of export.
• Huge external borrowing: A country will have
adverse balance of payments when it borrows
heavily from another country
• Inflation: Rapid economic development, increase
in the income & price will adversely affect BOP
position of a developing country like India.