The balance of trade is a narrow term

It takes into account only the

transactions arising out of the export and import of visible items

It takes into account only merchandise exports and imports The balance of trade does not take into account the exchange of invisible items like services of Banking Insurance Transport

Tourism sector
Interest payments Receipts Dividend payments Receipts and other receipts Payments

The invisible include the cost of services, income and transfer

payments Indias balance of trade for the last 50 years is given below

India's balance of trade(Rs.Crores)

Year 1951-52 1961-62 1971-72 1981-82 1991-92 Exports 716 660 1608 7806 44041 Imports 890 1090 1825 13608 47851 Balance of trade -174 -430 -217 -5802 -3810

2000-02

209018

245199

-36181

 Indias Exports and imports has grown

considerably over the period of last 50 years In terms of value exports, the imports have grown at a much faster rate The trade deficit has also been increased considerably It can be clearly seen that country has faced a substantial trade deficits during the period

The balance was positive in only two years

i.e.1972-73 and 1976-77 when the country recorded small trade surpluses of US $ 134 million and US $ 077 million receptively The trade deficit has increased significantly over the years.

BALANCE OF PAYMENT
The balance of payment is a much wider term as

compared to balance of trade Balance of payments presents an account of comprehensive economic and financial transactions of a country with the rest of the world It takes into account the export and import of both the visible and invisible items It takes into considerations the export and imports of goods of all kinds including consumer goods, consumer durable, fast moving consumer goods,

 Capital goods,machinery,technical

equipments, and services like banking, insurance ,tourism, transportation and payment of salaries,benefits,interest,dividends.

India's balance of payments (US $Million)

item Trade balance Invisible net Current account balance Capital account balance Overall balance Foreign exchange reserves 1990-91 -9438 -242 -9680 2000-01 -12460 9794 -2666 2001-02 -11574 14974 3400 2002-03 -10690 17035 6345 2003-04 -13718 27801 14083 2004-05 -33702 31232 -2470

7056

8840

8551

10840

16736

28022

-2492 -1278

5868 5842

11757 11757

16985 16985

31421 31421

26159 26159

 Balance of payments has improved considerably after

liberalization Overall balance of payments was $2492 million(negative)in 1990-91 which has increased to $26159 millions in 2004-05 However India's balance of trade has been negative or adverse till 2004-05 It has increased from $9438 to $ 33702 in 2004-05

 It also shows that the BOP has been positive due to

increase in balance of capital account.

Concepts of balance of payments

Definitions:- The balance of payments is defined as

a systematic record of all economic transactions between the residents of a country and residents of foreign countries during a certain period of time Systematic record refers to the system of double entry book keeping system Economic transactions include all such transactions that involve the transfer of title or ownership The time period is generally one year

Balance of payments account(A hypothetical example)

Credit(Receipts) (in Rs. Crore) Debit(Payment) (in Rs. Crore)

(A) Current account

(1)Goods Exported (2)Services Exported (3)Income from investment in the foreign country (4)Unilateral receipts Total 800 400 400 (8)Goods imported (9)Services imported (10)Income to foreigners on investment in the reporting country (11)Unilateral payments 2400 (B) Capital account Total 1200 800 800

800

400 3200

International trade institutions and trade agreements

International monetary fund(IMF): The IMF, also known as the fund was conceived at a

United nationals conference convened in Bretton Woods, New Haamshire,United stated, in july,1944 The 44 government represents at that conference sought to build a framework for economic cooperation that would avoid a repetition of the vicious of competitive devolutions that had contributed to the Great Depression of the 1930

 The international monetary fund(IMF) is an

organizations of 187 countries working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world The most important development in this directions is the institutions of special drawing account by IMF On only July 28,1969 a provision was made for the allocation of special Drawing rights(SDRs)

 International reserve assets was made in the

amendments to the articles of agreement of IMF for the purpose of supplementing the supply of traditional reserve aspects to meet the growing needs of the member countries SDRs are popularly known's as Paper gold SDR becomes a unit of international medium of exchange and a store house of currency value

IMF
Membership:-187 countries Headquarters :-Washington, D.C Executive Board:-24 Directors repressing countries or

groups of countries Staff:-Approximately 2,500 from 160 countries Total quotas:-US$376 billion (as on 5/25/11) Additional pledged or committed resource:-US$600 billion Loans committed (as of 5/25/11):-US$280 billion, of which US$215 billion have not been drawn Biggest borrowers(amount agreed as of 5/25/11):greece,portugal,ireland

World Bank
The world bank is a vital source of financial and technical

assistance to developing countries around the world. Its mission is to fight poverty with passion and professionalism for lasting results and to help people help themselves and their environment by providing resources, sharing knowledge, building capacity and forging partnerships in the public and private sectors It is not a bank in common sense It is made up of two unique development institution owned by 187 member countries. The international bank for reconstruction and development (IBRD) and the international development association (IDA)

 THE IBRD aims to deduce poverty in middle-income and

credit worthy poorer countries, while IDA focuses on the world poorest counties Their work is complemented by that of the international finance corporation (IFC), multilateral investment guarantee agency (MIGA) and the international centre for the settlement of investment disputes (ICSID) Together they provide low interest loans, interest free credits and grants to developing countries for a wide array of purpose the include investments in education,health,public administration,infrastructure,financial and private sector development, agriculture and environment and natural source management

 The world bank, established in 1944, is headquartered

in Washington,D.C We have more than 10,000 employees in more then 100 offices worldwide In India The world bank works in close partnership with the central and state government It also works with the development partners, bilateral and multilateral donor organizations, on-government organizations(NGOs). The private sector and the general public-including academics, scientists, Economists ,Journalists, teachers, and local people involved in development projects.

 One of the latest projects of the World bank in India is

the National Ganga River Basin Project the world bank has approved $1 billion in support of India's efforts to clean the iconic Ganga

 Biggest precautionary loans(Amount agreed as of

5/25/11):-Mexica,Poland,Colombia Transparency:- In 2009,over 90 present of article IV and program related staff reports and policy papers were published Original Aims:-Article I of the articles of agreements sets out the IMFs main goals Promoting international monetary cooperation Facilitating the expansion and balanced growth of international trade

 Promoting exchange stability

Assisting in the establishment of a multilateral system

of payments

Accounting structure of balance of payments accounts

Current account:-The current account contains entries

related to export and import of merchandise and service that change the current level of consumption or national income of the country Capital account:-The capital account contains entries relating to movement of short term and long term capital both in and out of the country along with gold and foreign exchange reserves to increase or decrease of a countrys total stock of capital