Q.

3 Write a short note on Balance of Payment of India

INTRODUCTION
Balance of payment is a financial statement which gives a comprehensive idea about the various
transactions of a country with other countries. It is a very useful statement to the government, business firms and
the banks to formulate various policies.
INDIAS BOP SINCE 1991
Trade account balance:
TRADE ACCOUNT BALANCE
(US $ Million)
YEAR

1990-91

2010-11

2011-12

TRADE A/C BALANCE

-9,438

-1,30,593

-1,89,759

AS % GDP

-3.0

-7.8

Observation: Throughout the period shown, Trade balance is negative. The reason for the increase in trade
deficit is increase in imports of POL, increase in demand for essential items like pulses, more imports of
engineering goods and industrial inputs, recent increase in gold imports.
Current account balance:
CURRENT ACCOUNT BALANCE (source:RBI)
(US $ Million)
YEAR

1990-91

2010-11

2011-12

CURRENT A/C BALANCE

-9,680

-45,945

-78,155

AS % GDP

-3.1

-2.8

Observation: In the post 1991 period India has a surplus in current account during period 2001-02 to 2003-04.
Except for these years, Indias current account has been in deficit. High percentage of trade balance deficit and
global slowdown since 2008-09 are the main reasons for increasing deficit.
Capital account balance: includes foreign investment, loans and banking capital. Foreign investment is non
debt liability which are more advantageous than the debt flows
CAPITAL ACCOUNT BALANCE
(US $ Million)
YEAR

1990-91

2010-11

2011-12

CAPITAL A/C BALANCE

7,188

61,989

67,755

AS % GDP

2.7

3.8

..

The capital account balance has been positive in all the years
Overall balance: gives an idea of the net positin by taking into account current account, capital account balance
by adjusting errors and omissions
Overall balance ( US $ million)

Indias overall balance was positive except 1090-91 & 2008-09. Overall balance becomes negative when current
account deficit is greater than positive capital account balance.
FOREX: major currencies US dollar, euro, pound sterling, Australian dollar, Japanese yen
(- increase) (+ decrease)

In 1990-91 as well 2011-12, foreign exchange reserves have decreased due to larger deficit in current account
balance.
BOP situation is showing imbalance since 2010, due to fluctuating Foreign Investment .

CONCLUSION
There has been a growing strength in Indias BOP position in post reform period in spite of growing trade deficit
and current account deficit.