Balance of Payment (BoP)

Presented by

Parvathy.M.U

Definition “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 them on account of goods imported and services received from the capital transferred to ‘non-residents’ or ‘foreigners’.” – Reserve Bank of India (RBI)

Importance of BoP The BoP is an important indicator of pressure on

a country’s foreign exchange rate .

The BOP helps to forecast a country’s market potential, especially in the short run.

Changes in a country’s BOP may signal the imposition or removal of controls over payment of dividends and interest, license fees, royalty fees, or other cash disbursements to foreign firms or investors.

Contents of BoP

Current account Capital account Financial account Net errors and omissions account Reserves and related items:

official reserve account

Current account

Net export/import of goods (trade balance) Net export/import of services Net income (investment income from direct

and portfolio investment plus employee compensation)

Net transfers (sums sent home by migrants and permanent workers aboard, gifts, grants and pensions)

Capital account

Capital transfers related to the purchase and sale of fixed assets such as real estate

Financial account

Net foreign direct investmentNet portfolio investmentOther financial items

Net errors and omissions account

Missing data such as illegal transfers

Reserves and related items: official reserve

account Changes in official monetary reserves

including gold, foreign exchange, and IMF position.

Components of the trade Imports

-bulk imports: petroleum, crude & products, bulk consumption goods, other bulk items.

-non bulk imports: capital goods, mainly export related items

Exports

-agriculture and allied products, ores and minerals, manufactured goods, mineral fuels.

Import proportion (in %)

0

5

10

15

20

25

30

35

40

45

1970-71 1980-81 1990-91 2004-05

petroleum, crude &productsbulk consumptiongoodsother bulk items

capital goods

mainly export relateditems

Export proportion (%)

0

10

20

30

40

50

60

70

80

1970-71 1980-81 2004-05

agriculture & alliedproductsores & minerals

manufactured goods

minerals fuels

others

Invisibles(%)

particulars 2003-04 2004-05

A. services 36.4 45.4

-travels 5.1 3.1

-transportation 3.2 .8

-software services

44.4 53

-miscellaneous (16.3) (11.6)

B. Transfers 76.8 66.8

C. Income (16.2) (12.2)

BoP in five year plans

-400000

-300000

-200000

-100000

0

100000

200000

300000

1stplan

2ndplan

3rdplan

4thplan

5thplan

6thplan

7thplan

8thplan

9thplan

trade deficitnet invisiblesBoP

In 10th five year plan

-200000

-150000

-100000

-50000

0

50000

100000

150000

2002-03 2003-04 2004-05

trade deficitnet invisiblesBoP

Countries with which India trade

OECD(1)European union-France-Belgium-Germany-UK-Italy(2) North America-Canada-USA(3) Other OECD-Australia-Japan-Switzerland

OPEC- Iran- Indonesia- Saudi Arabia- UAE Eastern Europe- Russia Developing countries- China- Hong-Kong- South Korea- Malaysia- Sigapore- SAARC- Africa- others

Direction of india’s exports

euopean union

north america

other OECD

OPEC

eastern europe

developing countries

Direction of india’s imports

european union

north americaother OECD

OPEC

eastern europe

developing countries

Thank you

Any questions????????????