A

PRESENTATION
ON

BALANCE OF PAYMENT
 MEANING
• BOP is a systematic record of all transactions
during a given period of time between the
residents of the country and of the foreign
country.
• A country’s balance of payments accounts
keep track of both its payments to and its
receipts from foreigners.
 Rules For BOP Accounting

• A transaction that leads to an actual or

potential payment from residents of country to
the rest of world (ROW) is to be recorded as
debit, in that country’s BOP; transaction that
leads to payment from ROW to residents is a
credit entry.
• A transaction that increases the availability or
reduces demand for foreign exchange is credit
entry, a transaction that uses up foreign
exchange is a debit entry.
 Components of BOP
• The Current Account
• The Capital Account
• The Official Reserve Account
 CURRENT ACCOUNT
It includes :
 Merchandise trade
 Invisibles (non-merchandise trade)
 Non monetary sale or purchase of gold
• Merchandise trade includes import and export of
tangible goods.
• Non- Merchandise Trade includes
 Trade In Service like travel and tourism and
transport, engineering, consulting and other
performed service.
 Factor Income like payment and receipt of interest,
dividend, and other income on previously made
foreign investment.
 Unilateral Transfer includes pension, remittance,
gift, foreign aid, etc.
 Non-monetary Sale Or Purchase
Of Gold

• Monetary movement : sale or purchase of gold that

influence international monetary reserves.
• Non-monetary is done for industrial purposes
 Capital Account
• It comprises long term and short-term inflow and out
flow of funds under the capital account receipts and
payments

Capital account consists of

 Foreign equity investment in India

 Loan
 Other Investment
 FOREIGN EQUITY INVESTMENT

• It includes:
 Direct investment: directly investing in India
 Through port-folio: purchase of Indian
companies’ stock through foreign institutional
investors or subscriptions by non-resident
investors to GDR and ADR issues by Indian
companies.
 LOAN
It includes:
 Concessional loans received by the
government or public sector bodies.
 Long and medium term borrowings from the
commercial capital market in the form of
loans, bonds
 Short-term credit.
Other investment includes transactions in
currency, bank deposits, trade credits, etc.
 Recoding In Capital Account

• Disbursement received by Indian entities are

credit items
• Payments and loans made by Indians are debit
items
• Change in foreign assets and liabilities of the
banking sector [increase (decrease) in assets-
debit (credit), increase ( decrease) in liability –
credit (debit) ]
 Official Reserve Account
• When a country must make a net payment to
foreigners because of balance of payment
deficit, the central bank of the country should
run down official reserve.
• It consists of monetary gold, foreign exchange,
SDR (special drawing rights) allocation by IMF
and foreign currency.
• If the overall BOP is surplus, the surplus
amount is added to the official reserve A/C.
• If the overall BOP is deficit, the official reserve
A/c is debited with the deficit amount.
 BOP AT A GLANCE
• Balance Of Trade= Export of goods-Import of goods.

• Balance Of Current A/C= Balance of trade + Net

earnings on invisibles

• Balance Of Capital A/C= Foreign exchange inflow –

Foreign exchange outflow, on account of foreign
investment, foreign loans, banking transactions and
capital flows.

• Overall BOP = Balance of current A/c + Balance of

capital A/c + Statistical Discrepancy
THANK
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