Understanding Balance of Payments

October 2012

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and financial transfers.Balance of payments Balance of payments (BoP) is a statement that records all monetary transactions between a country and the rest of the world. capital account and change in foreign reserves. and are prepared in a single currency. services. BoP consists of the current account. 2 . The change in foreign reserves is the net of capital and current account. • Transactions include payments for the country's exports and imports of goods. financial capital. • The BoP account summarizes international transactions for a specific period. typically the domestic currency for the country concerned. usually a quarter.

Citi bank India borrowing from Citi Cop) External Commercial borrowings ( Indian companies borrowing from outside) Foreign Aid 3 .Line items in BoP statement CURRENT ACCOUNT CAPITAL ACCOUNT Balance of Trade in Goods & Services • • Balance of merchandise Trade (Goods) Balance of Trade in Services Net Investment Income: Interest. Banking capital and loans • • NRI deposits Banks borrowing from parent body ( e.g. It is usually easily liquidated. bonds etc. dividends received on cross-border investments. It allows the buyer managerial powers Foreign Institutional Investor (FII): It refers to crossborder purchases of stocks. remittances from oversees residents Foreign Direct Investment (FDI): Long term investment such as buying a stake (>10%) in a company in the target country. hence called ‘hot money’.

Understanding current and capital account Trade Balances Net Foreign Direct Investment ( Exports – Imports of goods) (FDI) + Net Services + Foreign Portfolio Investment (FPI) (Exports – Imports of services) + + Banking capital and loans Net Investment Income (remittances. Trade Credits Current Account Capital Account 4 . dividends) + ECB. interest.

Nominal GDP (US $ bn) Exports (as a % of GDP) Imports (as a % of GDP) Brazil 2.076 9. IMF.7% China 7.236 1.8% 26.e. US and UK have negative trade balance i.Snapshot of exports & imports of BRIC.493 10. trade deficit.497 1500 Exports Imports 1000 522 500 256 226 475 324 307 299 399 0 Brazil Russia India China US UK India.6% 25.0% 23.850 16.298 26.9% 14.8% UK 1. Morgan Stanley Research.9% US 15.899 1.5% India 1.5% Source: CEIC. This is because their imports are greater than their exports. Data as on FY 2011 5 .850 28.US & UK 2500 2.743 2000 US $(bn) 1.2% 17.508 19.3% 9.1% Russia 1.

8 bn Machry Excpt Elec & Electronic 6% Gold 12% Perls Prcus Semiprcs Stones 6% Electronic Goods 7% Total Import in FY 2012 – US $499.6 bn Source: CEIC.India’s top 5 export & import constituents Top 5 contituents of India's export in FY 2012 Top 5 Contituents of India's Import in FY 2012 Petroleum (Crude & Products) 18% Gems & Jewellary 15% Petroleum. Data as on FY 2011 6 . Morgan Stanley Research. IMF. Crude & Products 32% Others 37% Others 49% Transport Equipments 7% Machinery And Instruments 5% Other Commodities 6% Total Export in FY 2012 – US $309.

8 bn 16.9% of GDP Others $ 47.6.6%% of GDP Add Add Net Services $ 35.3% of GDP Loans $19.9 bn 0. Data as on Mar 2012 7 .7% of GDP) Net of Capital & Current Account = .1% of GDP Add $17.9 bn (3.9% of GDP FII Equals Trade balance Add Remittances Add $ .2 + 67.6 bn 2.78.05% of GDP $29 bn 1.3 bn 1.2 bn 0.7 bn 10.6% of GDP Banking capital $16.4% of GDP Capital Account = US $ 67.1 bn 1.78.9% of GDP Add Add Current Account = US $ .2% of GDP Net FDI Less Import $499.04 bn 1.2% of GDP) Others $ .4 Source: CEIC.5bn 27.2 bn 0.2 bn (4.189.9 = US $ -10. RBI.8% of GDP $ 22.Understanding India’s balance of payments structure Export $309.

As a bank account.4 bn.Explaining BoP using an analogy Excess funds flow into foreign reserves Lent out +ve Net of Current and Capital Account Think of foreign reserves as a country’s bank account. it will transfer money as and when needed by the country.6 bn= $10.$ 291.9 bn) is primarily due to the outflow of $ 10.6 bn The fall in Forex reserves from March ’11 to March ’12 ($ 302. -ve Deficits are sourced from foreign reserves Net of Capital & Current Account as on March ’12 : ($10.5 bn India’s Forex Reserve as on March ’12: $291.4 bn) (sourced from our Forex reserves) India’s Forex Reserve as on March ’11: $302.9 bn . used to fund the difference between the Capital & Current Account 8 .

3Q FY09: Negative BoP which means net foreign exchange outflow and it corresponds to INR depreciating from Rs 45 to a dollar to Rs 50 to a dollar Surplus in BoP Addition to foreign reserves Demand for INR Appreciation of INR Deficit in BoP Depletion of foreign reserves Demand for USD Depreciation of INR Source: RBI.BoP and currency movement BoP is colloquially defined as net of Capital and Current Account . which is the change in foreign reserves.MOSL 9 .

Disclaimer This presentation shall not constitute any offer to sell or solicitation of an offer to buy units of any of the Schemes of the DSP BlackRock Mutual Fund. read all scheme related documents carefully. 10 . Mutual Fund investments are subject to market risks.

0 77.4 -70.2 22.5 327.0 559.9 0.0 16.5 -3.0 62.7 -4.6 -1.8 -2.0 3.8 -118.4 22.8 39.7 1.0 12.0 28.0 3.7 -7.2 -189.3 5.0 0.0 0.0 131.7 0.4 -202.3 0.7 89.0 5.6 7.0 0.1 -46.0 25.1 2.3 -6.5 -77.0 67.FII+ Banking capital .9 -2.0 16.0 15.0 74.4 13.8 2.0 16.0 16.9 7.5 -51.5 149.0 113.7 93.7 189.0 15.6 250.0 12.0 510.6 381.2 16.0 RBI's forex intervention -34.9 -13.1 80.0 20.4 107.FDI .6 15.2 300.3 2.2 -4.9 7.3 1.6 80.0 12.8 0.3 -6.0 15.4 30.7 -19.3 -118.5 -16.4 0.Exports .0 12.0 307.0 -2.8 2.4 -2.2 -0.4 18.6 2.4 -5.0 -3.7 9.5 -38.6 111.7 10.2 4.1 39.6 0. BofA Merrill Lynch Global Research estimates.7 0.0 14.7 -130.4 2.9 10.0 55.0 7.1 -78.9 2.0 36.0 Source: RBI.7 3.0 10.9 12.2 106.3 1.8 -183. 11 .9 2.0 30.9 -21.8 499.0 -3.1 0.0 105.0 125.3 2.6 155.Annexure 1: India’s overall BoP (US $bn) FY09 Q4 FY11 Q4 FY12 FY11 (US$88/bbl) FY12 (US$108/bbl) FY13 (US$107/bbl) FY14 Item Current Account % of GDP Trade balance .6 7.0 156.2 11.0 357.0 7.7 50.0 4.7 -30.1 84.0 9.4 -14.0 29.Imports o/w Oil imports Invisibles o/w income from forex reserv.6 87.2 1.3 8.0 4.0 23.5 4. Capital Account Foreign investment .9 2.5 17.9 -11.4 182.NRI deposits Short term credit ECBs External assistance Others Overall balance Memo FY10 (US$69/bbl) -28.1 17.0 4.9 -10.9 52.8 309.2 11.3 -1.2 2.9 6.0 32.3 -1.3 -3.