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WHAT IS BOP ?
÷ The balance of payments accounts are those that
record all transactions between the residents of a
country and residents of all foreign nations.
÷ The BOP is determined by the country's exports
and imports of goods, services, and financial
capital, as well as financial transfers.
÷ It reflects all payments and liabilities to
foreigners (debits) and all payments and
obligations received from foreigners (credits).
÷ Balance of payments is one of the major
indicators of a country's status in international
trade
BOP CONSISTS OF
R The Current Account

R The Capital Account

R Official Reserves Account

R Errors and Ommisions

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 —
—.
÷ If the credits exceed the debits, then a country is
running a —

 .
CURRENT ACCOUNT
1. Export & Import of Merchandise & Services

2. Income Account
(The income account accounts mostly for
investment income from dividends and interest
on credit and payments on foreign taxes.)
3. Transfer payment
(Grants received / given, Pvt.Transfer)
CAPITAL ACCOUNT
1. Foreign Investment(FDI, FII)
2. Banking Capital (NRI Deposits)
3. Short term credit
4. External Commercial Borrowings(ECB)
CAPITAL ACCOUNT
÷ If foreign ownership of domestic financial assets
has increased more quickly than domestic
ownership of foreign assets in a given year, then
the domestic country has a 2
  22


 .
÷ On the other hand, if domestic ownership of
foreign financial assets has increased more
quickly than foreign ownership of domestic
assets, then the domestic country has a 2
 
22 2.
OFFICIAL INTERNATIONAL RESERVES
÷ The official international reserve account records
the change in stock of  2 
  

 
  (also known as foreign exchange
reserves) at the country's monetary authority .

÷ Official reserves assets include gold reserves,

foreign currencies, SDRs, reserve positions in
the IMF.
÷ {Special Drawing Rights (SDRs) are potential
claims on the freely usable currencies of IMF
members.}
÷
NET ERRORS AND OMISSIONS

÷ This is the last component of the balance of

payments and principally exists to correct any
possible errors made in accounting for the three
other accounts

÷ They are often referred to as "balancing items".

INDIA·S INTERNATIONAL TRADE
INDIA·S MAJOR TRADING PARTNERS
INDIA·S TRADE BASKET
 APRIL ² JUNE QUARTER 2008-09
(IN US $ BILLION )
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(US $ BILLION)

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INDIA·S BOP POSITION DURING THE 1ST
HALF OF 2008-09 (APRIL-SEPT)
÷ Widening of Tr. Deficit resulting in large CAD,
and moderation in capital flows.
÷ Merchandise trade deficit recorded a sharp
increase during April-November 2008 on account
of higher crude oil prices for most of the period
and loss of momentum in exports since
September 2008.
÷ Net surplus under invisibles remained buoyant,
(led by increase in software exports and private
transfers.)
÷ Net capital inflows reduced sharply and have
remained volatile during 2008-09 so far.
 ååCONTD
÷ While the net inward FDI remained buoyant net
outward FDI also remained high during April-
September 2008.
So the gross capital inflows were higher on
account of higher FDI inflows and NRI deposits
during the period.

÷ The revised 

maturing up to
March 2009, was estimated at around 
as at end-March 2008.
 å.CONTD
÷ India·s merchandise exports during April-Nov
2008 increased by 0 Ë while imports recorded
a higher growth of  Ë, largely due to the rise
in (POL) imports.
The rise in oil imports was primarily due to the
elevated international crude oil prices, while the
volume of oil imports moderated.
EXPORTS

÷ Decline in exports
1.1Ë drop to $ 12.7 billon in Dec 08
12.1Ë drop in Oct 08
9.9Ë drop in Nov 08

÷ 22Ë drop in Jan 09

÷ Decline of exports in following sectors: (Dec 08)

Handicraft & Handlooms 64Ë
Textile 13Ë
Gems & Jewellery 21Ë
Chemicals 21Ë
EXPORTS
÷ Increase in exports
Eng. Goods, Phama & Agri. Products
(in the range of 19-25Ë)

÷ India·s estimated exports 0 FY 08-09

$ 160 billion FY 07-08
Govt set target 
IMPORTS
÷ Imports grew by  to $ 20.25 b in Dec 08
Non oil imports 30.9Ë to $15.54 b
(consisting of Capital Equipment & Proj. Goods)
This suggests a robust domestic activity.
TRADE DEFICIT
÷ $ 7.57 Billion in Dec 08
$ 10.07 Billion in Nov 08

÷ Tr. Deficit for 1st 9 months is 

(74Ë higher than S 58.98 b in the year ago
period )

÷ Lower Oil Imports over Jan- Mar will enable to

end this fiscal with a Tr. Deficit of about 
higher than last year·s.
INWARD REMITTANCES
÷ Indicated to touch $ 40 billion in year 2008
(World Bank projection was $ 30 billion )

÷ In 2007, No. 1 was India (27 billion)

No.2 was China (25.7 billion)

÷ Unlike FIIs flows, inward remittances are

considered to be extremely sticky
÷ Mostly from Blue collar workers(not more than

$ 500 per month)

FOREX RESERVES

÷ Import cover of India·s foreign exchange reserves

declined to 00 as at end-September ¶08
as against 0 as at end-March ¶08 in
sync with the fall in reserves, the RBI said in its
half-yearly report on forex reserves.

÷ As of January 16, 2009, foreign exchange

reserves at declined by US $
57.5 billion over the level at end-March 2008
ECB & FCCB
÷ Even after Indian govt. relaxed overseas
borrowing norms for corporates, loans have failed
to pick up.(as foreign banks curb lending)
÷ During Oct- Dec 2008, inflows through ECB &
FCCB were only against $ 8.1 b in Oct ²
Dec 2007

÷ Borrowings through ECB & FCCBs dipped 

in 2008.
Indian companies borrowed during the
year as compared to $33.1 b in 2007
THE GLOBAL SCENE
÷ Commodity & oil prices have come down

÷ Subprime crisis
IS INDIA HEADING TOWARDS BOP CRISIS
OR NOT ?

÷ What is BoP crisis

÷ Sufficient Forex Reserves

÷ Volatility of FII
FACTORS IMPACTING BOP
÷ Trade Agreement
÷ Trade Policy

÷ Currency Exchange Rate

÷ Tax , Tariff and Trade Barriers

IMPACT OF STIMULUS PACKAGE
÷ Trade Interest
÷ Interest subversion

÷ Exemption of Tax
MEASURES FOR MAKING BOP
FAVOURABLE
÷ Diversification of Trade
÷ Development of New Industries

÷ Concentrate on selected sectors

÷ Concentrating on Frugal engineering skills

÷ Incentives related to Trade

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