BALANCE OF PAYMENT INDIA 2016-2018

Dwi Rahmadani Davis (1710533005)

Rana Syifa Medinda (1710533023)

i. Current Account

As learned earlier, the current account includes all transactions that directly meet
economic needs and are differentiated as trading in goods and services, receiving or paying
income from investments (primary income), and unilateral transfers (secondary income).
With a national accounting identity, the current account is definitively the same as the inflow
of resources into the economy from abroad and reflects the gap between savings and
domestic investment. Based on available data, India has a current account deficit (CAD),
driven in large part by a trade deficit in goods (goods) and partly offset by service exports
and net receipts in secondary income (transfer) accounts.

1) Transactions in Goods and services

Transaction in Good

The global economic environment remains poor for export of goods while higher
prices for major import commodities so India expands import bills for 2018. The increase
was caused not only by the rising trend in international crude oil prices that had driven
exports of petroleum products, the impact of the warm growth in the volume of world trade in
goods was partly due to increased trade tensions and increased policy uncertainty that had
affected overall export growth. Under the BoP, non-oil export growth slowed in the 2017
period than in 2018, due to three main sectors, namely, gems and jewelry, readymade
clothing and marine products. In contrast, electronic goods, engineering goods, petroleum
products and chemicals recorded higher shipments.

Import growth in 2019 slowed compared to import growth in 2018 but remained aldo
slowed than in 2017, despite the sharp rise in 2018 in oil import bills. This was mainly due to
lower gold prices and lower growth of non-oil and gas non-oil and gas imports. Crude oil,
being the largest import item in the import basket, makes India's trading account vulnerable
to international price movements. During 2018, due to tighter supply conditions and
relatively stronger global economic activity compared to 2017, global oil inventories fell
rapidly and pushed prices up to more than US $ 80 per barrel. Furthermore, relief was given
by the US to major oil importers from Iran and higher production in Saudi Arabia and Russia
reduced oil prices, which helped reduce India's trade deficit in 2018. However, India's oil
import bill higher billion during the year compared to 2017.

In graph 2, in 2016-17 import growth was lower than exports so the trade surplus
increased by 5 percent. whereas in 2017-18 import growth was faster than exports resulting in
a trade deficit of 6 percent. while Because imports are growing faster than exports, the trade
(goods) deficit widened to 6.6 percent of GDP in 2018-19 from 6.0 percent a year ago. Of the
additional increase of 0.6 percentage points in the trade deficit, 0.5 percentage points are
caused by unfavorable movements in net trade provisions and 0.1 percentage points are
caused by changes in gross trade like as import volumes are growing faster than exports
volume.

Transaction of Service
 Based on chart 3, we can draw the conclusion that India is included in the top ten
global exporters and importers of services. Cross-country comparisons of leading service
exporters show that growth in Indian service exports during 2013-18 (on average) was the
third highest after Ireland and Japan. As we can see from the data, India's net service exports
growth to 5.6 percent in 2018 from 13.5 percent in 2017. It means that the current account for
transaction of service in the surplus posisition. This is despite software exports, the biggest
contributor to clean service exports, growing at a faster pace, surviving difficult global
market conditions.

2) Primary Income

Primary income is an important part of demand deposits and includes all amounts to
be paid and receivables from non-resident entities in exchange for providing labor, financial
resources or non-financial assets that are not produced for a while. Given India's net
international financial obligations to the rest of the world like as net negative international
investment position, there has been ongoing expenditure from the main income account of the
balance of payments. Net spending increased slightly to $ 28.7 in 2017 from $ 28.3 in 2016.
While net spending increased by US $ 28.9 billion in 2018 from US $ 28.7 billion a year ago.
Because expenditure is greater than India's income, the current account deficit position. So
India must make loans to other countries to cover expenses that continue to increase from
year to year.
Secondary Income

In the case of India, secondary income is primarily a cross-border transfer

(remittance) by expatriates who send a portion of their income to support their families.
Along with the global recovery in remittances, remittances into India (private) also increased
$70 in 2018 from $62,5 in 2017 because of on the back of rising international crude oil prices
and improving conditions for nominal income in the US which is one of the main source
countries for sending money in to other than Gulf countries. The rupee depreciation of 7.8
percent against the US dollar during 2018 also added to the flow of remittances to India.
Since remittances out of India are relatively less than bound remittances, there has been a
position of ongoing net surplus in this account that could offset around 39 percent of the
goods trade deficit in 2017 to 2019.

ii. Capital Account