Punjabi University, Patiala

School Management Studies

Tittle:- BOP analysis last 10 years of India

Submitted To:- Submitted By :-

Dr. Liaquat ali Manpreet singh
Class:- MBA (IB)3rd Sem
Roll no. 19421405
What is a Balance of Payment ?
A Balance of Payment Account is a systematic record of all economic transactions
between residents of a country and the rest of the world carried out in a specific
period of time.

Briefly put, ‘Balance of Payment Account is a summary of

international transactions of a country for a given period’. It records a country’s
transactions with the rest of the world involving inflow and outflow of foreign
exchange. In short BOP Account is a summary statement of transactions in foreign
exchange in a year.

Two Sides of Balance of Payment: -

a) Debit Side
b) Credit Side

❖ Debit Side: - It records all the outflow of foreign exchange due to economic
transaction between the residents of two different countries.

❖ Credit Side: - This side of BOP records all the inflow of foreign exchange that
arises during one-year period. Economic Transaction:-It refers to those transaction
that involves the change in ownership or titleship of Assets, goods, services or
money from resident of one country to the resident of the other country.
Economic transaction are broadly categorized as:-

➢ Visible item

➢ Invisible items

➢ Unilateral transfers

➢ Capital transfer
i. Visible items: - Visible items include the export and import of physical goods.
ii. Invisible items: - It includes services having no physical existence such as Baking
insurance or shipping Services.
iii. Unilateral transfer: - it includes gifts, personal remittance etc.
iv. Capital transfer: - Transaction that causes change in the value of Assets and
liabilities
of the residents or its government.
Why balance of payment is more important for a country?
A country’s BOP is vital for the following reasons:

❖ BOP of a country reveals its financial and economic status.

❖ BOP statement can be used as an indicator to determine whether the country’s

currency value is appreciating or depreciating.

❖ BOP statement helps the Government to decide on fiscal and trade policies.

❖ It provides important information to analyze and understand the economic

dealings of country with other countries. The BOP statement provides a clear
picture of the economic relations between different countries. It is an integral
aspect of international financial management. Now that you have understood Bop
and its components, let’s look at why it is important. To begin with, the BOP
statement provides information pertaining to the demand and supply of the
country’s currency. The trade data shows a clear picture of whether the country’s
currency is appreciating or depreciating in comparison with other countries. Next,
the country’s BOP determines its potential as a constructive economic partner. In
addition, a country’s BOP indicates its position in international economic growth.
Components of Balance of Payment
Now let’s understand the different components of the Bop. The Bop consists of three
main components—current account, capital account, and financial account. As
mentioned earlier, the Bop should be zero. The current account must balance with the
combined capital and financial accounts.

Current Account
The current account monitors the flow of funds from goods and services trade
(import and export) between countries. Now this includes money received or spent
on manufactured goods and raw materials. It also includes revenue from tourism,
transportation receipts, revenue from specialized services (medicine, law,
engineering), and royalties from patents and copyrights. In addition, the current
account includes revenue from stocks.

Capital Account
The capital account monitors the flow of international capital transactions. These
transactions include the purchase or disposal of non-financial assets (for example,
land) and non-produced assets. The capital account also includes money received
from debt-forgiveness and gift taxes. In addition, the capital account records the
flow of the financial assets by migrants leaving or entering a country and the
transfer, sale, or purchase of fixed assets.

Financial Account
The financial account monitors the flow of funds pertaining to investments in
businesses, real estate, and stocks. It also includes government-owned assets such
as gold and Special Drawing Rights (SDRs) held with the International Monetary
Fund (IMF). In addition, it includes foreign investments and assets held abroad by
nationals. Similarly, the financial account includes a record of the assets owned by
foreign nationals.

Structure of Balance of Payment :

 1. Trade account balance.
It is the difference between exports and imports of goods, usually referred as visible
or tangible items. Till recently goods dominated international trade. Trade account
balance tells as whether a country enjoys a surplus or deficit on that account. An
industrial country with its industrial products comprising consumer and capital
goods always had an advantageous position. Developing countries with its export
of primary goods had most of the time suffered from a deficit in their balance of
payments. Most of the OPEC countries are in better position on trade account
balance. The Balance of Trade is also referred as the 'Balance of Visible Trade' or
'Balance of Merchandise Trade'.
3. Current Account Balance.
It is difference between the receipts and payments on account of current account
which includes trade balance. The current account includes export of services,
interests, profits, dividends and unilateral receipts from abroad, and the import of
services, interests, profits, dividends and unilateral Payments to abroad. There can
be either surplus or deficit in current account. The deficit will take place when the
debits are more than credits or when payments are more than receipts and the
current account surplus will take place when the credits are more than debits.
3. Capital Account Balance.
It is difference between the receipts and payments on account of capital account.
The capital account involves inflows and outflows relating to investments, short
tern borrowings/lending, and medium term to long term borrowing/lending. There
can be surplus or deficit in capital account. The surplus will take place when the
credits are more than debits and the deficit will take place when the debits are
more than credits.
4. Foreign Exchange Reserves .
Foreign exchange reserves (Check item No.9 in above figure) shows the reserves
which are held in the form of foreign currencies usually in hard currencies like
dollar, pound etc., gold and Special Drawing Rights (SDRs). Foreign exchange
reserves are analogous to an individual's holding of cash. They increase when the
individual has a surplus in his transactions and decrease when he has a deficit.
When a country enjoys a net surplus both in current account & capital account, it
increases foreign exchange reserves. Whenever current account deficit exceeds the
inflow in capital account, foreign exchange from the reserve accounts is used to
meet the deficit If a country's foreign exchange reserves rise, that transaction is
shown as minus in that country's balance of payments accounts because money is
been transferred to the foreign exchange reserves.
Foreign exchange reserves (forex) are used to meet the deficit in the balance of
payments. The entry is in the receipt side as we receive the forex for the particular
year by reducing the balance from the reserves. When surplus is transferred to the
foreign exchange reserve, it is shown as minus in that particular year's balance of
payment account. The minus sign (-) indicates an increase in forex and plus sign (+)
shows the borrowing of foreign exchange from the forex account to meet the
deficit. 5. Errors and Omission The errors may be due to statistical discrepancies &
omission may be due to certain transactions may not be recorded. R

India’s Balance of Payment :-

Date : Aug 27, 2015
India’s Overall Balance of Payments
(US $ million)
2010- 2011- 2012- 2013- 2014-
11 12 13 14 15P
1 2 3 4 5 6
A. CURRENT ACCOUNT
1 Exports, f.o.b. 256,159 309,774 306,581 318,607 316,741
2 Imports, c.i.f. 383,481 499,533 502,237 466,216 460,920
- - - - -
3 Trade Balance
127,322 189,759 195,656 147,609 144,179
4 Invisibles, Net 79,269 111,604 107,493 115,212 116,242
a) ‘Non-Factor’ Services of
44,081 64,098 64,915 72,965 75,683
which :
Software Services 50,905 60,957 63,504 66,958 70,400
b) Income -17,952 -15,988 -21,455 -23,028 -24,983
c) Private Transfers 53,125 63,469 64,342 65,481 66,275
5 Current Account Balance -48,053 -78,155 -88,163 -32,397 -27,937
B. CAPITAL ACCOUNT
1 Foreign Investment, Net
42,127 39,231 46,711 26,386 73,561
(a+b)
a) Direct Investment 11,834 22,061 19,819 21,564 32,627
b) Portfolio Investment 30,293 17,170 26,891 4,822 40,934
2 External Assistance, Net 4,941 2,296 982 1,032 1,630
3 Commercial Borrowings,
12,160 10,344 8,485 11,777 2,729
Net
4 Short Term Credit, Net 12,034 6,668 21,657 -5,044 -924
5 Banking Capital of which : 4,962 16,226 16,570 25,449 11,618
NRI Deposits, Net 3,238 11,918 14,842 38,892 14,057
6 Rupee Debt Service -68 -79 -58 -52 -81
7 Other Capital, Net @ -12,416 -6,929 -5,047 -10,761 1,426
8 Total Capital Account 63,740 67,755 89,300 48,787 89,959
C. Errors & Omissions -2,636 -2,432 2,689 -882 -616
D. Overall Balance
13,050 -12,831 3,826 15,508 61,406
[A(5)+B(8)+C]
E. Monetary Movements
-13,050 12,831 -3,826 -15,508 -61,406
(F+G)
F. IMF, Net
G. Reserves and Monetary
Gold (Increase -, Decrease +) -13,050 12,831 -3,826 -15,508 -61,406
of which : SDR allocation
Memo: As a ratio to GDP
1 Trade Balance -7.5 -10.3 -10.7 -7.9 -7.0
2 Net Services 2.6 3.5 3.5 3.9 3.7
3 Net Income -1.1 -0.9 -1.2 -1.2 -1.2
4 Current Account Balance -2.8 -4.2 -4.8 -1.7 -1.3
5 Capital Net (Excld. changes
4.5 3.0 5.1 3.4 7.4
in reserves)
6 Foreign Investment, Net 2.5 2.1 2.5 1.4 3.6
P: Provisional.
@: Includes delayed export receipts, advance payments against imports,
net funds held abroad and advances received pending issue of shares
under FDI.
Note: 1. Gold and silver brought by returning Indians have been included
under imports, with a contra entry in private transfer receipts.
2. Data on exports and imports differ from those given by DGCI&S on
account of differences in coverage, valuation and timing.
Date : Aug 25, 2020
India’s Overall Balance of Payments
(US$ million)
 2019-20
2015-16 2016-17 2017-18 2018-19
(P)
1 2 3 4 5 6
A. CURRENT ACCOUNT
1 Exports, f.o.b. 2,66,365 2,80,138 3,08,970 3,37,237 3,20,431
2 Imports, c.i.f. 3,96,444 3,92,580 4,69,006 5,17,519 4,77,937
- - - - -
3 Trade Balance
1,30,079 1,12,442 1,60,036 1,80,283 1,57,506
4 Invisibles, Net 1,07,928 98,026 1,11,319 1,23,026 1,32,850
a) ‘Non-Factor’ Services
69,676 68,345 77,562 81,941 84,922
of which :
Software Services 71,454 70,763 72,186 77,654 84,643
b) Income -24,375 -26,302 -28,681 -28,861 -27,281
c) Private Transfers 63,139 56,573 62,949 70,601 76,217
5 Current Account
-22,151 -14,417 -48,717 -57,256 -24,656
Balance
B. CAPITAL ACCOUNT
1 Foreign Investment,
31,891 43,224 52,401 30,094 44,417
Net (a+b)
a) Direct Investment 36,021 35,612 30,286 30,712 43,013
b) Portfolio Investment -4,130 7,612 22,115 -618 1,403
2 External Assistance,
1,505 2,013 2,944 3,413 3,751
Net
3 Commercial
-4,529 -6,102 -183 10,416 22,960
Borrowings, Net
4 Short Term Credit, Net -1,610 6,467 13,900 2,021 -1,026
5 Banking Capital of
10,630 -16,616 16,190 7,433 -5,315
which :
NRI Deposits, Net 16,052 -12,367 9,676 10,387 8,627
6 Rupee Debt Service -73 -99 -75 -31 -69
$
7 Other Capital, Net 3,315 7,559 6,213 1,057 18,462
8 Total Capital Account 41,128 36,447 91,390 54,403 83,180
C. Errors & Omissions -1,073 -480 902 -486 974
D. Overall Balance
17,905 21,550 43,574 -3,339 59,498
[A(5)+B(8)+C]
E. Monetary
-17,905 -21,550 -43,574 3,339 -59,498
Movements (F+G)
F. IMF, Net 0 0 0 0 0
G. Reserves and
Monetary Gold -17,905 -21,550 -43,574 3,339 -59,498
(Increase -, Decrease +)
of which : SDR allocation 0 0 0 0 0
Memo: As a ratio to
GDP
1 Trade Balance -6.2 -4.9 -6.0 -6.6 -5.5
2 Net Services 3.3 3.0 2.9 3.0 3.0
3 Net Income -1.2 -1.1 -1.1 -1.1 -1.0
4 Current Account
-1.1 -0.6 -1.8 -2.1 -0.9
Balance
5 Capital Net (Excld.
2.0 1.6 3.4 2.0 2.9
changes in reserves)
6 Foreign Investment,
1.5 1.9 2.0 1.1 1.5
Net
P : Provisional.
$ : Includes delayed export receipts, advance payments against imports,
net funds held abroad and advances received pending issue of shares
under FDI.
Note : 1. Gold and silver brought by returning Indians have been
included under imports, with a contra entry in private transfer receipts.
2. Data on exports and imports differ from those given by DGCI&S on
account of differences in coverage, valuation and timing.
Source : RBI.
 ASSESSMENT AND PROSPECTS Year of 2009 to 2010

Policy attention shifted from crisis management to recovery in the second half of
2009-10. While growth consolidated, inflationary pressures emanated from the
supply side due to weak South-West monsoon in 2009-10. The Reserve Bank had
to initiate a process of calibrated exit from the accommodative monetary policy
stance starting in October 2009 to contain inflation and anchor inflationary
expectations. A clear indication of growth consolidation came during Q4 of 2009-
10, when inflation became increasingly generalized. As a result, the Reserve Bank
had to accelerate the pace of calibrated monetary adjustment going into 2010-11.
While the growth outlook for 2010-11 remains robust, inflation has emerged as a
major concern. Going forward, as the monetary position is normalized, addressing
structural constraints in several critical sectors is necessary to sustain growth and
also contain supply side risks to inflation. The fiscal exit, that has already started,
will need to continue. Improving the overall macro-financial environment through
fiscal consolidation, a low and stable inflation regime, strengthening of the
financial stability framework and progress on structural reforms will help sustain
growth and boost productivity. In the domain of central banking, the Reserve Bank
will continue to address the medium-term objective of improving the contribution
of finance to rapid and inclusive growth.
I.1 Following the global financial crisis, the domestic macroeconomic environment
changed significantly over four distinct half-yearly phases starting from the second
half of 2008-09. Each phase posed various challenges for the Reserve Bank. First,
GDP growth decelerated in the second half of 2008-09, reflecting the impact of
the global crisis. The Reserve Bank swiftly introduced a comprehensive range of
conventional and unconventional measures to limit the impact of the adverse
global developments on the domestic financial system and the economy. Second,
in the first half of 2009-10, weakness in the economic activity necessitated
continuation of the monetary policy stimulus. The low inflation environment also
created the space for continuation of an accommodative monetary policy stance.
But, by the middle of the year, a deficient South-West monsoon triggered renewed
concerns for recovery as well as food inflation. Third, despite the dampening pulls
of the deficient monsoon and an adverse global economic environment, growth in
GDP exhibited a robust recovery ahead of the global economy in the second half
of 2009-10. Food inflation, that had started rising in response to the weak kharif
production, turned out to be more persistent in the second half of the year. Rising
and increasingly generalized inflation warranted withdrawal of the policy stimulus.
Since the policy challenge for the Reserve Bank was to anchor inflationary
expectations without harming the recovery, a calibrated approach to monetary
unwinding was adopted. Fourth, in the first few months of 2010-11, it became
increasingly evident that growth momentum would further consolidate amidst
persistent signs of weakness in the global economy, taking the annual growth
closer to the pre-global crisis trajectory. But the headline inflation remained at or
close to double digits over four successive months of the year and the inflation
process had also become more generalized. The balance of policy attention, thus,
had to shift from recovery to inflation.

I.1Well into the second quarter of 2020-21 (April-March), COVID-19 continues to

stalk the earth, imprisoning close to 210 countries in its deadly embrace. In its
wake, the pandemic leaves a trail of destruction – at the time of release of this
Report, it had claimed 7.90 lakh lives, 73.59 lakh active infections and counting out
of 2.25 crore confirmed cases worldwide (as on August 20, 2020), driven human
societies into unfamiliar isolation, halted economic activity globally and
extinguished jobs and incomes. At the first tentative signs of relief – ‘green shoots’
being the operative term – people fatigued by asphyxiating social
distancing/masks/sanitisers and the ‘lockdown syndrome’ have unlocked in
varying degrees, desperate to regain control over their lives and livelihood. In
several countries, a renewed surge of infections and deaths has triggered re-
clamping down of containment procedures. It is difficult to distinguish whether
the first wave of virus has intensified or if a second wave has hit.

I.2 COVID-19 has also hit India hard. Until recently, six cities – Mumbai; Delhi;
Ahmedabad; Chennai; Pune; and Kolkata – accounted for half of all reported cases.
Over recent weeks, however, the curve has arched upwards in lower tier
cities/towns and the virus is penetrating even further into the interior regions.
Unlike peers, India had responded quickly and forcefully, with two months of
nation-wide lockdown starting March 25. From the first case reported on January
30 and the first death on March 12, the movement was relatively moderate to a
little less than 1000 confirmed cases and 19 deaths three days after the lockdown.
By mid-May, the pandemic had taken hold; confirmed cases crossed 85,000
surpassing China. At the end of July when Unlock 3.0 was about to begin,
confirmed cases were nudging 16.50 lakh, with 35,747 deaths, which have
subsequently increased to 28.36 lakh and 53,866 deaths, respectively (as on
August 20, 2020).

I.3 India’s experience has also yielded hope and an innate belief in the
unconquerable character of humanity and the institutions that serve it.
Notwithstanding large gaps in health infrastructure, the death rate in India is one
of the lowest in the world (1.9 per cent as against the world average of 3.5 per
cent as on August 20, 2020). Testing, clinical management and hospital support
are being ramped up. The recovery rate has crossed 70 per cent and is climbing.
The challenges that face the country are to flatten the curve, restore employment,
especially to displaced migrants, rebuild supply chains, repair and revive the
stricken economy and return life to normalcy. There is a widespread recognition
that only in close coordination among all stakeholders will the people of India be
able to determine the shape of the recovery. While the path ahead is still shrouded
with high uncertainty, sifting through the experience of the year gone by could
fortify this resolve and marshal the grit and resources to deal with the challenges
that confront us in 2020-21 and beyond over the medium-term.
Recent Data Trend
India's current account balance posted a marginal surplus of USD 0.6 billion (0.1%
of GDP) in the Jan-Mar quarter 2020, as against a deficit of USD 4.7 billion in Jan-
Mar 2019 and USD 2.6 billion in the previous quarter. It is noteworthy that this is
the first quarterly current account surplus since the Jan-Mar quarter of 2007. It is
primarily on account of lower trade deficit at USD 35 billion and a rise in net
invisible receipts (which includes services, primary and secondary income) at USD
35.6 billion.
The lower trade deficit is a result of the sharp decline in demand at both the
national and international levels following the implementation of COVID-19
lockdowns and a fall in global crude oil prices since the beginning of this year.
In the financial account, net foreign direct investment at USD 12 billion was higher
than USD 6.4 billion in Jan-March quarter 2019. On the portfolio investment side,
there was a net outflow of USD 13.7 billion compared to USD 9.4 billion inflow the
same quarter last year on account of money being pulled out from both debt and
equity markets. A surplus at both current and capital account has resulted in a
forex reserve accretion of USD 18.8 billion in the Jan-Mar quarter 2020.
Generally, a current account surplus is a piece of welcome news; however, in the
current scenario, it is a major worry for the Indian economy as it reflects a drop in
economic activity. Given that the imports collapsed more than the exports and
overall trade balance (services + goods) posted a surplus in the month of April and
May, the current account will likely remain in surplus in the June quarter.
 References
https://www.economicsdiscussion.net/balance-of-payment/balance-
of-payment-account-meaning-features-and-components/627
https://www.toppr.com/guides/economics/open-economy-
macroeconomics/balance-of-payments/
https://kalyan-city.blogspot.com/2010/12/concept-definition-and-
structure-of.html
https://www.rbi.org.in/scripts/AnnualReportPublications.aspx?Id=1286
https://www.indiamacroadvisors.com/page/category/economic-
indicators/international-balance/balance-of-payment-bop/