Components of Balance of Payments Balance of Payments is generally grouped under the following heads i) Current Account ii) Capital Account
iii) Unilateral Payments Account iv) Official Settlement Account. Current Account The Current Account includes all transactions which give rise to or use up national income. The Current Account consists of two major items, namely: i) Merchandise exports and imports, and ii) Invisible exports and imports. Merchandise exports, i.e., the sale of goods abroad, are credit entries because all transactions giving rise to monetary claims on foreigners represent credits. On the other hand, merchandise imports , i.e., purchase of goods from abroad, are debit entries because all transactions giving rise to foreign money claims on the home country represent debits. Merchandise imports and exports form the most important international transaction of most of the countries .Invisible exports, i.e., sales of services, are credit entries and invisible imports, i.e. purchases of services, are debit entries. Important invisible exports include the sale abroad of such services as transport, insurance, etc., foreign tourist expenditure abroad and income paid on loans and investments (by foreigners)in the home country form the important invisible entries on the debit side. Capital Account The Capital Account consists of short- terms and long-term capital transactions A capital outflow represents a debit and a capital inflow represents a credit. For instance, if an American firm invests Rs.100 million in India, this transaction will be represented as a debit in the US balance of payments and a credit in the balance of payments of India. The payment of interest on loans and dividend payments are recorded in the Current Account, since they are really payment s for the services of capital. As has already been mentioned above, the interest paid on loans given by foreigners of dividend on foreign investments in the home country are debits for the home country, while, on the other hand, the interest received on loans given abroad and dividends on investments abroad are credits. Unilateral Transfers Account Unilateral transfers is another terms for gifts. These unilateral transfers include private remittances, government grants ,disaster relief, etc. Unilateral payments received from abroad are credits and those made abroad are debits. Official Settlements Accounts Official reserves represent the holdings by the government or official agencies of the means of payment that are generally accepted for the settlement of international claims
The external commercial borrowings was extensively used to finance the current account deficit.655 million from invisibles. the reasons are (i) High earnings from invisibles.
. the current account deficit in this year was $ 9.186 million. The current trend of outsourcing a number of jobs by the developed countries to the developing ones is also helping us to get more jobs and earn additional foreign exchange.841 million. In April 2007 we had $ 203 billion foreign exchange reserves.083 million. As far as non factor services receipts are concerned the main development has been the rapid increase in the exports of software services. There was a satisfactory balance of payment position in that period. In 2005-06. As far as private transfers are concerned their main constituent is workers remittance from abroad. NRI deposits and foreign investment both portfolio and direct have helped to a great extent. The year 2005-06 registered the highest trade deficit so far running into $ 51. As a result despite impressive positive earnings of as much as $ 42.069 million in 1990-91 to $ 24. Within the imports the POL items constituting a sizeable position continued to increase throughout. The main reasons for huge increase in capital account is due to large capital inflows on account of Foreign direct investment (FDI). and (iii) Encouragement to foreign direct investment. There has been a growing strength in India's balance of payment position in the post reform period inspite of growing trade deficit and current account deficit. Invisible
The impressive role placed by invisibles in covering trade deficit is due to sharp rise invisible receipts. It declined to $ -2.
5.189 million which is 1. Trade deficit in 2005-06 stood at $ -51. The Non-resident deposit also form a part of capital account.
The balance of payment situation started improving since 1992-93. because of rising Oil prices. Current Account
Current account balance includes visible items (trade balance) and invisibles is in a more encouraging position. The main reason for the improvement during 2001-05 was the success of invisible items.
4. once again there was a deficit of $ 9.1% of GDP. Reserves
Reserves have changed during this period depending on a balance between current and capital account. Foreign Institutional Investors (FIIs) investment on the stock markets and also by way of Euro equities raised by Indian firms.Main Components of India's Balance of Payments
1. (ii) Rise in external commercial borrowings. The net non resident deposits were positive through out the ten year period. Trade Balance
Trade balance was in deficit through out the period shown in the table as imports always exceeded the exports. The main contributing factor to rise in invisible receipts are non factor receipts and private transfers.102 million in 2005-06.841 billion US $. Capital Account
Capital account has been positive throughout the period. The positive earnings from invisibles covered a substantial part of trade deficit and current account deficit reduced significantly.
2.666 million in 2000-01 from $-9680 million in 1990-91 and recorded a surplus in 2003-04 to the extent of $ 14. Exports did not achieve the required growth rate. An increase in inflow under capital account has helped us to build up our foreign exchange reserve making the country quiet comfortable on this count. During this period the private transfer receipts also increased from $ 2.