Balance of Payment and Foreign Direct

Investment

Dr. P. Vidhya Priya

Professor
Department Of Management Studies
 Balance of Payment
• The BOPs is the systematic record of economic transactions of a
nation with the rest of the world in a single accounting year
Balance of Payments Schedule
 Trends in India’s BOP
India’s Balance of Trade
•During 1950–51, India’s trade deficit was Rs. 2 crore. It increased
to US$ 180.3 billion in 2018–19.
•India’s exports 2019-20 $314 billion
•India’s imports 2019-20 $467 billion
•Trade deficit $153 billion
India’s Current Account
•For 2017–18 and 2018–19, India’s current account deficit was 1.8
and 2.1% of GDP respectively
India’s Capital Account
•India enjoys surplus in its capital account because capital inflows
are greater than capital outflows.
Overall Balance of Payment
•India enjoys overall surplus in its BOP because the capital account
surplus overcompensates India’s current account deficit
 Foreign Direct Investment
• Investment made in a country by a foreign investor in order to
control the ownership of an entity or business enterprise
• FDI inflows should be counted from 10% stock or asset
ownership in a company.
Types of FDI
• Greenfield FDI
• Brownfield FDI
• Joint Venture
Routes of FDI in India
• Automatic Route of RBI
• Government Route
Difference between FDI & FII
Characteristic Features of FDI in India
• India - largest and most sought after FDI destinations
• Service sector in India attracts maximum FDI
• Mauritius and Singapore have emerged as the largest FDI donor
to the country
• Peninsular India receives around 50% of FDI
Top Five FDI Donors to India
(2018–19)
Characteristic Features of FDI in India
…continued
Top Five Sectors Attracting FDI in India 2018–19

States Receiving Highest FDI in India (2018–19)

 Advantages of Foreign Direct
Investment
FDI Fills the Three Gaps
•Saving gap, Foreign exchange gap, Fiscal gap
FDI and the Technology Transfer
•Gap filled via technology transfers
•intense competition among MNCs to provide innovative products to the
emerging markets
•cost advantage in emerging markets
Efficiency-Seeking FDI
•create higher skilled and better-paid jobs, promote the transfer of knowledge,
raise productivity, and diversify and upgrade the value-added component of
exports
FDI Leads to Human Capital Enrichment
•More training and other upgrading of human capital than do domestic
enterprises
FDI and Competition Enhancement
•Domestic competition, higher productivity, lower prices, efficient resource
allocation
FDI Ensures Consumer Sovereignty
•more efficient and lower cost supply chains, better quality, lower-priced products
 Disadvantages of Foreign Direct
Investment
The March of Oligopolies
•Few big MNCs dominate the market and even influence the consumption
patterns
Capturing the Host Country’s Market
•Acquisition of shares through Brownfield FDI.
The Question of Access to Technology
•Old technology, high cost & real “absorption” of technology not a reality
The Threat to Sovereignty
•Crony capitalism
•Bandwagon effect