Presented to :Prof.

Koel Roychaudhary

PRESESNTED BY:-

SUDESHNA CHOWDHURY 14 PARAG SATHE 15 AYUSHI GUPTA - 27 ANKITA MISHRA 33 MOHAMMAD SHAYAZI - 40 SOUMABHA SAHA 47 BHOOMIKA SAPRU 56

Balance of payments
Balance of payments is a systematic record of economic transactions of the residents of a country with the rest of the world during given period of time In India it is a systematic record of Indias international economic transactions of residents with the rest of the world in goods, services,financial assets Residents cover nationals as well as nonnationals residing in the country

Bop(contd..)
Double entry system of Record International Monetary Fund (IMF) has prescribed a Balance of Payment Manual. BOP of payment Accounts Merchandise Services Income Unilateral transfers

Bop(contd..)

Conceptually it is divided into 3 accounts:

1. Current account 2. Capital account 3. Official Reserves account

IMPORTANCE OF BOP
It is an important indicator of pressure on a countrys foreign exchange rate. It helps to forecast a countrys market potential, especially in the short run. Changes in a countrys BOP may signal the imposition or removal of controls over payments of dividends and interest, license fees, royalty fees, or other cash disbursements to foreign firms or investors.

Current Account

Economic transactions that enter the current account are presented in two parts :
i) ii)

Merchandise and Invisibles

A surplus on current account leads to an acquisition of assets or repayment of debts previously contracted. Deficit involves withdrawal of previously accumulated assets or is met by borrowings.

Current Account
Merchandise - It comprises imports and exports of movable goods. Invisibles

Travel Credit Transportation Insurance Govt. not included elsewhere Miscellaneous Income i) Investment income, ii) Compensation of Employees b) Transfers

Income Account : Receipts include interest earned on the investments of RBI and on holdings of SDRs. payments include interest and commitment charges on foreign loans, on purchases from the IMF and those on cumulative allocation of SDRs Transfer payment : i) Official ii) Private

Foreign Investment External Assistance Banking Capital Rupee Debt Service Other Capital

Foreign Investment
Foreign Direct Investment : In line with international best practices, the coverage of FDI has been expanded since 2000-01 to include, besides equity capital, reinvested earnings (retained earnings of FDI companies) and other direct capital (inter-corporate debt transactions between related entities). The composition of BoP, however, would undergo changes. These changes relate to investment income, external commercial borrowings and errors and omissions. In case of reinvested earnings, there would be contra entry (debit) of equal magnitude under investment income in the current account.

Foreign Investment
Portfolio Investment : Portfolio investments mainly include FIIs investment, funds raised through GDRs/ADRsby Indian companies and through offshore funds. Data on investment abroad, hitherto reported, have been split into equity capital and portfolio investment since 2000-01.

External Assistance
External assistance by India denotes aid extended by India to other foreign Governments under various agreements and repayment of such loans. External Assistance to India denotes multilateral and bilateral loans received under the agreements between Government of India and other Governments/International institutions and repayments of such loans by India, except loan repayment to erstwhile Rupee area countries that are covered under the Rupee Debt Service.

External Assistance
Commercial Borrowings : Commercial Borrowings by India denote loans extended by the Export Import Bank of India (EXIM bank) to various countries and repayment of such loans. Commercial Borrowings to India denote drawls/ repayment of loans including buyers credit, suppliers credit, floating rate notes (FRNs), commercial paper (CP), bonds, foreign currency convertible bonds (FCCBs) issued abroad by the Indian corporate, etc. It also includes India Development Bonds (IDBs), Resurgent India Bonds (RIBs), India Millennium Deposits (IMDs). Short term loans to India : It is defined as the drawls in respect of loans, utilized and repayments with a maturity of less than one year.

Banking Capital

It comprises three components: a) foreign assets of commercial banks (ADs), b) foreign liabilities of commercial banks (ADs), and c) others. Foreign assets of commercial banks consist of (i) foreign currency holdings, and (ii) rupee overdrafts to non-resident banks. Foreign liabilities of commercial banks consists of (i) Nonresident deposits, which comprises receipt and redemption of various non-resident deposit schemes, and (ii) liabilities other than nonresident deposits which comprises rupee and foreign currency liabilities to non-resident banks and official and semi-official institutions. Others under banking capital include movement inbalances of foreign central banks and international institutions like IBRD, IDA, ADB, IFC, IFAD, etc., maintained with RBI as well as movement in balances held abroad by the embassies of India in London and Tokyo.

Other Capital
Other capital comprises mainly the leads and lags in export receipts. Besides this, other items included are funds held abroad, Indias 225 External Sector Statistics subscription to international institutions, quota payments to IMF, remittances towards recouping the losses of branches/subsidiaries and residual item of other capital transaction not included elsewhere.

OFFICIAL RESERVES ACCOUNT

The official international reserve account records the change in stock of official international reserve assets(also called as foreign exchange reserves) Official reserves assets include gold reserves, foreign currencies, SDRs, reserve positions in the IMF.(SDRs are potential claims on the freely usable currencies of IMF members)

Balance of Payment - Disequilibrium

Trade Deficit and Surplus

Current account deficit and Surplus

Capital account deficit and Surplus BOP deficit and Surplus

Causes and Types of Disequilibrium

Inflation and Fundamental Disequilibrium Structural changes and Structural Disequilibrium Business Cycle and Cyclical Disequilibrium Short Term Disequilibrium factors

Balance of Payment(Apr-Sep 2010)

Item
A.CURRENT ACCOUNT

Debit

Credit

Net

5,08,932
I. MERCHANDISE II.INVISIBLES B. CAPITAL ACCOUNT 1. Foreign Investment (a+b) 2.Loans (a+b+c) 3. Banking Capital (a+b) 4. Rupee Debt Service 5. Other Capital C. Errors & Omissions D. Overall Balance

8,17,401
2,25,448

-3,08,469
1,79,900

4,05,348

5,54,164

4,19,349

1,34,815

2,30,948
1,55,386 17,255 18,72,033

1,58,649
1,51,854 78 58,786 8,109 18,39,674

72,299
3,532 -78 -41,531 -8,109 32,359

Measures to Correct Disequilibrium

1. 2. 3. 4. 5. 6. Deflation Exchange depreciation Devaluation Tariffs and Quotas Export promotion Import substitution