Balance of Payments

1.

A countrys balance of payments reveals its financial position vis-vis foreign countries.

2.

The two sides of balance of payments must always balance i.e. payments to be made to outsiders must equal the receipts from outsiders.

3.

Since it furnishes key information related to an understanding of a countrys economic problems thus it is of great value in forecasting its business and economic conditions.

Balance of payments Current account Capital account

Current account shows the income and expenditure for /or purchase of goods and services .

Exports Merchandise Imports

Current Account Services

Travel

Transportation

Invisibles

Income

Insurance

Grants, Gifts

Capital account reflects the changes in the international indebtedness of the country.

Foreign Investment Capital Account Loans Banking Capital

FDI FII Invetment

 As a simple accounting necessity : balance of payments data are kept according to accounting principles- so for every debit there is a credit. So it is clear that a nations balance of payments must always balance. Then why we talk about a deficit or a surplus in balance of payments?

Transactions appearing in balance of payments:

Autonomous Transactions
Transactions Induced or compensatory transactions

Adjustments of Balance of Payments: 1. A decline in foreign balances,

2. Export of gold,
3. Sale of domestically held securities in an international market, and 4. Short-term borrowings.

Balance of Payments Summary: Current Account

29.6% 31.5 %

13.8% 20 %

3.7 % 37.3%

40.1% 34 %

Source: RBI http://indiabudget.nic.in

Source: RBI http://indiabudget.nic.in

Balance of Payments Summary: Capital Account and Overall Balance

Source: RBI http://indiabudget.nic.in

100000 80000

92164

Overall Balance
All Figures are in US $ million

60000
40000 20000 0 2006-07 2007-08 2008-09 2009-10 2010-11 -20000 -40000 -20080 36606 13441 13050

Overall 7030

5719
201112#

Source: RBI http://indiabudget.nic.in