Balance of

Payments and
Trade Deficit

Zainab Haleem
CONTENTS
Balance Of Balance Of
Payments Trade

Tracing
Strategies
BOP

Strategies
To Solve
 BALANCE OF PAYMENTS
 It is a system record of all economic
transactions between the residents
of the country and the rest of the
world carried out in a specific period
of time.

 It takes into account the export and

import of both visible and invisible
items.

 The balance of payments of a

country provides an overall view of
its international economic position.
BALANCE OF TRADE
 Balance of trade refers to the difference
between physical imports and exports
(visible) items.
 During a given period of time, exports and
imports may be exactly equal ---- balanced.
 If value of exports of a country exceeds the
value of imports ---- favourable balance of
trade
 When the value of imports coming to the
country is greater than value of exports ----
unfavourable or deficit.
TRACING BOP’S IN INDIA
 Its position was satisfactory during the first five year
plan. The period in flow of foreign capital was 127
cr. Deficit of current account was only 42.3 cr.
 The second and third five year plans recorded
negative balance of payments.
 The fourth and fifth five year plans recorded
positive balance of payments with 100 cr. and
3082 cr. respectively.
 From 1985-86 to 1989-90 Balance of Payments are
negative.
 During 2001-02 to 2004-05 India had a surplus of
BOP
 2005-06 onwards it suffered again with deficit
 Again India experienced positive BOP in 2008-09.
STRATEGIES TO SOLVE TRADE
DEFICIT
 Reducing the value of the exchange rate
can help to reduce a trade deficit. When
the value of a currency falls it makes the
countries’ exports more competitive,
increasing quantity demanded.
 A depreciation also makes imports more
expensive, reducing demand for imports
and foreign holidays. Therefore, we would
expect a depreciation to improve the
trade deficit.
POLICIES IN OTHER COUNTRIES
 1. Supply Side Policies – these policies aim to
improve the productivity and competitiveness
of the economy – making UK exports more
competitive and attractive. This helps
increase exports.
 2. Deflationary fiscal policy. This involves
higher tax and lower government spending.
The deflationary fiscal policy helps reduce
inflation and thereby improve the
competitiveness of exports.
REFERENCES
 IGNOU - Economic Theory (BIBF)
 IGNOU - Foreign Trade (BIBF)
 Economic Survey 2018
 https://www.livemint.com/Politics/3ovhLM
VkdX6tOd3Mtx6mMM/Indias-current-
account-deficit-in-Q2-at-06-of-GDP-
RBI.html
 Data Sources: RBI , Ministry of Commerce
and Industry, Ministry of Finance