BALANCE OF PAYMENT

Balance of Payment refers to the recording of all economic transactions of a given country with rest of the world

FEATURES
SYSTEMATIC RECORD FIXED PERIOD OF TIME

DOUBLE ENTRY SYSTEM

SELF BALANCED

ALL ITEMS GOVT. & NON GOVT.

COMPONENTS
CURRENT ACCOUNT CAPITAL ACCOUNT FINANCIAL ACCOUNT

OFFICIAL INTERNATIONAL RESERVES ACCOUNT

NET ERRORS AND OMISSIONS

CURRENT ACCOUNT
It is a statement of actual receipts and payments in short-period. It includes the value of imports and exports of both visible and invisible items.
BOP On Current Account = (Visible + invisible Exports)-(visible + invisible Imports) OR

CONTD..
Balance of Payment on Current Account may be both balanced or unbalanced (in the sense of deficit or surplus). Disequilibrium of the BOP on Current Account is usually balanced by the medium of Capital Account.

CAPITAL ACCOUNT
Capital Account refers to financial transactions. All kinds of short-term and long-term capital transfers, movement of gold, payments on private account, payments and receipts on national institutional account and government loans, interest, grants, etc. are included in capital account.

CONTD..
If foreign ownership of domestic financial assets has increased more quickly than domestic ownership of foreign assets in a given year, then the domestic country has a Capital Account Surplus.

CONTD..
On the other hand, if domestic ownership of foreign financial assets has increased more quickly than foreign ownership of domestic assets, then the domestic country has a Capital Account Deficit.

MAIN ITEMS OF CAPITAL ACCOUNT

PRIVATE FOREIGN LOAN FLOW OFFICIAL CAPITAL TRANSACTIONS GOLD MOVEMENT

FINANCIAL ACCOUNT
The financial account records transactions that involve financial assets and liabilities and that take place between residents and non-residents.

OFFICIAL INTERNATIONAL RESERVES ACCOUNT

The official international reserve account records the change in stock of official international reserve assets (also known as foreign exchange reserves).

CONTD..
Official reserves assets include: gold reserves, foreign currencies, SDRs.

NET ERRORS AND OMISSIONS

This is the last component of the balance of payments and principally exists to correct any possible errors made in accounting for the three other accounts. They are often referred to as "balancing items".

MEASURES FOR MAKING BOP FAVORABLE

Discouraging imports, Export promotion,

Encouraging Foreign Investment,

Attracting foreign tourists, Participation of Non-Residents.

BALANCE OF PAYMENT EQUILIBRIUM

This is a condition where the sum of debits and credits from the current account and the capital and financial account equals to zero. In other words, equilibrium is where:
CURRENT ACCOUNT+CAPITAL AND FINANCIAL ACCOUNTS = 0

MACROECONOMICS
Macroeconomics is a branch of economics that deals with the performance, structure, behavior and decision-making of the entire economy, be that a national, regional, or the global economy. It helps in study of aggregated indicators such as GDP, unemployment rates, and price indices to understand how the whole economy functions.

MACROECONOMICS FACTORS IMPACTING BOP

Trade Policy & Trade Agreement,
Economic Policies, Currency Exchange Rate, Tax & Tariff, Trade Barriers.

MACROECONOMIC POLICIES

FISCAL POLICY
Fiscal policy involves the use of government spending, taxation and borrowing to influence both the pattern of economic activity and also the level and growth of aggregate demand, output and employment.

MONETARY POLICY
Monetary Policy refers to the steps taken by RBI to regulate the cost and supply of money and credit in order to achieve the socio-economic objectives of the economy.

MAIN OBJECTIVES OF GOVT. ECONOMIC POLICY

Sustained economic growth Stable prices (low inflation)

A rise in average living standards

Sound government finances

PROBLEMS OF MANAGING THE MACRO ECONOMY

Inaccurate economic data Conflicting policy objectives

Selecting the right policy instrument

Uncertain time lags when running a policy

BALANCE OF TRADE
When the difference in the value of imports and exports of only physical goods and visible items, is taken into account, it is called Balance of Trade.

KINDS OF BALANCE OF TRADE

SURPLUS OR FAVOURABLE

DEFECIT OR UNFAVOURABLE

EQUILIBRIUM IN BALANCE OF TRADE

INDIA'S BALANCE OF PAYMENTS

Indias trade deficit during the first three

months of fiscal year (2009-10) on a balance of payments basis was large due to the steeper decline in the pace of exports than that of imports. The trade deficit on a BoP basis in Q1 (US$ 26.0 billion) was, however, less than that in Q1 of 2008-09 (US$ 31.4 billion).

INDIAS INTERNATIONAL GROWTH RATE

INDIAS MAJOR TRADING PARTNERS

conclusion