Balance of Payments

1. Welcome

2. Please put all your phones

3. The topic for today’s presentation is:-
BALANCE OF
PAYMENTS
BY
-AKSHAY SINGH
SY.B.M.S, ROLL NO 17.

4. Definition:-
 The balance of a payment is a systematic record of all its
monetary transactions with other countries of the world in a
given period of time. e.g 1 year
 When we say “a country’s balance of payments” we are
referring to the transactions of its citizens and government.

5.  According to Kindle Berger, "The balance of payments of a
country is a systematic record of all economic transactions
between the residents of the reporting country and residents of
foreign countries during a given period of time".

6. BOP position of India on current
account
From 1985-86 to 1989-90 Balance of Payments are negative.
During 2001-02 to 2004-05 India have surplus of BOP, but 2005-
06 onwards it suffered with the deficit. Again India experienced
positive BOP in 2008-09.
Its position is satisfactory at first five year plan. During the
period inflow of foreign capital was 127 cr. Deficit of current
account was only 42.3 cr.
The second and third five year plans recorded negative balance
of payments.
The fourth and fifth five year plans recorded positive balance
of payments with 100 cr. and 3082 cr. respectively.

7. TYPES OF BALANCE OF PAYMENT
The Balance of Payments statement comprises four major
categories
 Current Account
 Capital Account
 Reserve Accounts
 Errors & Omissions

8. Current Account
 Includes all imports and exports of goods and services.
 Includes unilateral transfers of foreign aid.
 If the debits exceed the credits, then a country is running a
trade deficit.
 If the credits exceed the debits, then a country is running a
trade surplus.

9. Capital Account
 On receipts side, short term and long-term capital inflow
receipts of foreign direct investment and foreign debts are
posted.
 Same items are written in payment side while making payment.

10. Reserve Accounts
 It shows the foreign exchange position of a country
 Official reserve account has the records of foreign official
holding and increase reserves of gold and foreign currencies

11. Errors & Omissions
 The entries under this head relate mainly to leads and lags in
reporting of transactions
 It is of a balancing entry and is needed to offset the overstated
or understated components.

12. IMPORTANCE OF BALANCE OF PAYMENT
 It helps in:-
 1) State of International economic relationship of country
 2) A guide to its monetary, fiscal, exchange & other polices.
 3) Inform government about the international economic position
of the country, to assist in reaching decisions on the monetary
and fiscal polices

13.  4)Consistent BOP deficit has an unfavorable effect on exchange
rate – depreciation of the currency.
 5)Central bank intervenes through its regulatory stock to control
volatility of exchange rate

14.  The balance of payments analysis shows:-
Whether it is paying for its import through exporting goods,
drawing down its foreign assest or receiving donations

15. Features of BOP Statement
Economic Transactions:-
 An economic transaction arises when values are
exchanged or moved between nations
 Theses may arise from:
a. movement of goods in the form of exports and
imports
b. rendering of services abroad and using foreign
services

16. Economic Transactions:-
c. Gifts/grants from one country to another
d. Investments made abroad or received from
abroad
e. Income on investments received from abroad or
remitted abroad
f. Increase/ decrease in the international reserves
of the country

17. Economic Transactions:-
 Transactions between residents with Non-residents.
 A Flow Statement.
 Periodicity.

18. CAUSES OF DISEQUILIBRIUM IN THE BOP
 Cyclical fluctuations
 Short fall in the exports
 Economic Development
 Rapid increase in population
 Structural Changes
 Natural Calamites
 International Capital Movements

19. MEASURES TO CORRECT ADVERSE BALANCE
OF PAYMENT
 EXPORT LED GROWTH
a) Instead Of exporting Raw material should export Finished
Goods
b) Reduction in Export Duties
c) Export Quality Products

20. MEASURES TO CORRECT ADVERSE
BALANCE OF PAYMENT
 REDUCTION IN IMPORTS
a) Import of Only Essential Items
b) Exchange Control
c) Substitutes for Imported Items

21. MEASURES TO CORRECT ADVERSE
BALANCE OF PAYMENT
 MISCELLANEOUS
a) Population Control
b) Decrease in Consumption
c) Control of Smuggling

22. Thank You