Name: Yashashree Chandak

Roll No:128
Sap No: 40311170093
Topic: Balance of Payment of India (Pre and Post 1991)

The balance of payments, also known as balance of international payments and abbreviated B.O.P
of a country is the record of all economic transactions between the residents of the country and the
rest of the world in a particular period of time (e.g., a quarter of a year). These transactions are
made by individuals, firms and government bodies. Thus the balance of payments includes all
external visible and non-visible transactions of a country.
Importance
 Balance of payment provides detailed information concerning the demand and supply of a
country’s currency. For example, if Sudan imports more than it exports, then this means
that the quantity of Sudanese pounds supplied by the domestic market is likely to exceed
the quantity demanded in the foreign exchanging market, ceteris paribus. One can thus
infer that the Sudanese pound would be under pressure to depreciate against other
currencies. On the other hand, if Sudan exports more than it imports, then the Sudanese
pound would be likely to appreciate.

 A country’s balance of payments data may signal its potential as a business partner for the
rest of the world. If a country is grappling with a major balance of payments difficulty, it
may not be able to expand imports from the outside world. Instead, the country may be
tempted to impose measures to restrict imports and discourage capital outflows in order to
improve the balance of payments situation. On the other hand, a country with a significant
balance of payments surplus would be more likely to expand imports, offering marketing
opportunities for foreign enterprises, and less likely to impose foreign exchange
restrictions.

 Balance of payments data can be used to evaluate the performance of the country in
international economic competition. Suppose a country is experiencing trade deficits year
after year. This trade data may then signal that the country’s domestic industries lack
international competitiveness.

To interpret balance of payments data properly, it is necessary to understand how the balance of
payments account is constructed.These transactions include payments for the country’s exports
and imports of goods, services, financial capital, and financial transfers. It is prepared in a single
currency, typically the domestic currency for the country concerned. The balance of payments
accounts keep systematic records of all the economic transactions (visible and non-visible) of a
country with all other countries in the given time period. In the BoP accounts, all the receipts from
abroad are recorded as credit and all the payments to abroad are debits. Since the accounts are
maintained by double entry bookkeeping, they show the balance of payments accounts are always
balanced. Sources of funds for a nation, such as exports or the receipts of loans and investments,
are recorded as positive or surplus items. Uses of funds, such as for imports or to invest in foreign
countries, are recorded as negative or deficit items.

When all components of the BoP accounts are included they must sum to zero with no overall
surplus or deficit. For example, if a country is importing more than it exports, its trade balance will
be in deficit, but the shortfall will have to be counterbalanced in other ways – such as by funds
earned from its foreign investments, by running down currency reserves or by receiving loans from
other countries.

While the overall BoP accounts will always balance when all types of payments are included,
imbalances are possible on individual elements of the BoP, such as the current account, the capital
account excluding the central bank’s reserve account, or the sum of the two. Imbalances in the
latter sum can result in surplus countries accumulating wealth, while deficit nations become
increasingly indebted. The term “balance of payments” often refers to this sum: a country’s balance
of payments is said to be in surplus (equivalently, the balance of payments is positive) by a specific
amount if sources of funds (such as export goods sold and bonds sold) exceed uses of funds (such
as paying for imported goods and paying for foreign bonds purchased) by that amount.

There is said to be a balance of payments deficit (the balance of payments is said to be negative)
if the former are less than the latter. A BoP surplus (or deficit) is accompanied by an accumulation
(or decumulation) of foreign exchange reserves by the Central Bank.
Under a fixed exchange rate system, the central bank accommodates those flows by buying up any
net inflow of funds into the country or by providing foreign currency funds to the foreign exchange
market to match any international outflow of funds, thus preventing the funds flows from affecting
the exchange rate between the country’s currency and other currencies. Then the net change per
year in the central bank’s foreign exchange reserves is sometimes called the balance of payments
surplus or deficit.
References
 https://en.m.wikipedia.org/wiki/Balance_of_payments
 https://www.investopedia.com/terms/b/bop.asp
Name : Akhil Anil Gangawane
Class - TYBcom
Roll no/ division - F-123
SAP N0 - 40104131036
Main topic: Balance of payment
Sub topic: Components of Balance of Payment

Abstract
The purpose of the study is to increase the understanding of the topic balance of payment.
Balance of Payment (BOP) is a statement which records all the monetary transactions made
between residents of a country and the rest of the world during any given period. This statement
includes all the transactions made by/to individuals, corporates and the government and helps in
monitoring the flow of funds to develop the economy.
Learning Objective
❖ To understand the meaning of balance of payment.
❖ To understand the components of balance of payment.

Report
Surplus and deficit
● In a perfect scenario, the Balance of Payments (Bop) should be zero. That is, the money
coming in and the money going out should balance out. But that doesn’t happen in most
cases.
● BOP statement of a country indicates whether the country has a surplus or a deficit of
funds i.e. when a country’s export is more than its import, its BOP is said to be in
surplus. On the other hand, BOP deficit indicates that a country’s imports are more than
its exports.

Components of Balance of Payment

The Bop consists of three main components—current account, capital account, and reserve
account
● Current account

The current account monitors the flow of funds from goods and services trade (import and
export) between countries. Now this includes money received or spent on manufactured
goods and raw materials. It also includes revenue from tourism, transportation receipts,
 revenue from specialized services (medicine, law, engineering), and royalties from patents
and copyrights.
● Capital account

Capital account records all those transaction which causes change in the assets and liabilities
of the government. This type of account includes foreign investment like (FDI) and portfolio
investments (investments that do not give the buyer the control over the assets). Borrowings
and lending of funds, it also includes other banking capital transactions (NRI who keep their
surplus funds with Indian bank.
● Reserve account

The reserves are maintained by the central bank, these reserves are held in the form of gold,
foreign currencies, etc. Central banks use their reserves to balance their payments from year
to year. When there is a trade surplus, the reserves will increase whereas when there is a
trade deficit the trade reserves will decrease.
Learning Outcomes
● Both the capital account and current account can have deficit or surplus situations. A
surplus capital account means that money is flowing into the country, but these inflows
reflect changes in the ownership of national assets by way of sale or borrowing.
● A deficit situation in the capital account occurs when more money is flowing out of a
country to acquire assets and rights abroad. It also means that though the money is going
out of the country, it results in the acquisition of assets or rights.
● Current Account Deficit or CAD is the shortfall between the money flowing in on
exports, and the money flowing out on imports. Current Account Deficit (or Surplus)
measures the gap between the money received into and sent out of the country on the
trade of goods and services.
● Current Account Deficit is slightly different from Balance of Trade, which measures only
the gap in earnings and expenditure on exports and imports of goods and services
● The category of official reserve account covers the net amount of transactions by
governments. This account covers purchases and sales of reserve assets (such as gold,
convertible foreign exchange and special drawing rights) by the central monetary
authority.
● Current account balance + Capital account balance + Reserve balance = Balance of
Payment
● (X – M) + (CI – CO) + FOREX = BOP
Name: - Saloni Rupani
Roll No.: - F124
SAP No.: - 40311170609
TOPIC: - Balance of Payment of India (Pre and Post 1991)
SUB-TOPIC: - Balance of trade (BOT) and Balance of payment (BOP)

What Is Balance of Trade (BOT)?

The balance of trade is the difference between the value of a country's imports and exports for
a given period. The balance of trade is the largest component of a country's balance of payments.
Economists use the BOT to measure the relative strength of a country's economy. The balance of
trade is also referred to as the trade balance or the international trade balance.

A country that imports more goods and services than it exports in terms of value has a trade
deficit. Conversely, a country that exports more goods and services than it imports has a trade
surplus. The formula for calculating the BOT can be simplified as the total value of imports
minus the total value of exports.
In effect, a country with a large trade deficit borrows money to pay for its goods and services,
while a country with a large trade surplus lends money to deficit countries. In some cases, the
trade balance may correlate to a country's political and economic stability because it reflects the
amount of foreign investment in that country.
The trade balance is based not only on a country's goods but also its services. If a country
imports more of these goods and services than it exports, it's said to have a trade deficit. On
the other hand, if this same country exports more goods and services than it imports, it has a
trade surplus. In each pair of global entities, there will be one with a surplus and one with a
deficit. The way to calculate this balance of trade is to take the total value of all imports and
subtract the total value of all exports between the two countries, or between one country and
the rest of the world.

Examples of Balance of Trade

There are countries where it is almost certain that a trade deficit will occur. For example, the
United States has had a trade deficit since 1976 because of its dependency on oil imports and
consumer products. Conversely, China, a country that produces and exports many of the world's
consumable goods, has recorded a trade surplus since 1995.
Comparison between the balance of trade vs balance of payments

Balance of Trade Balance of Payment

Meaning The balance of trade can be defined
as the net balance of the export of
goods and the import of goods in a
given period of time.
What’s it all about? Balance of trade helps a country
look at the net profit or net loss
incurred by the export and the
import of goods.
Difference The balance of trade is the
difference between exports of goods
and imports of goods.
Net effect The net effect of balance of trade is
either positive, negative or zero.
Types of transactions The entries in the balance of trade
are related to goods.
Capital and unilateral Capital and unilateral transfers are
transactions not included in the balance of trade.
Holistic picture It does only provide a partial
picture.
Balance of payment is the sum
total of balance of trade, balance
of services, balance of unilateral
transactions and, capital account.
Balance of payment helps to see
whether everything is properly
accounted for.
The balance of payments is the
difference between the inflow of
foreign exchange.
The net effect of balance of
payment is always zero.
Transactions related to goods,
services and transfers are
included in balance of payment.
Capital and unilateral
transactions are included in
balance of payment.
It provides the whole picture.

Here are the key differences between the balance of trade and balance of payments –

1. The balance of trade can be calculated by deducting the value of imports of goods from
the value of exports of goods. Balance of payments, on the other hand, can be calculated
by adding the balance of payments at the current account and balance of payments at a
capital account or by finding out the net balance between inflow of foreign exchange and
outflow of foreign exchange.
2. The balance of trade portrays a partial picture of foreign exchange. The balance of
payments, on the other hand, provides a holistic picture.
3. The net effect of the balance of trade can be positive, negative, or zero. The net effect of
the balance of payments would always be zero.
4. Capital and unilateral transfers are not included in the balance of trade. Capital and
unilateral transfers are major parts of the balance of payments.
5. The balance of trade is a sub-set of the balance of payments. Without calculating the
balance of trade, we would not be able to see the net effect of export and import in the
balance of payments.
Name – Dhvani Shah
Class –
Div & Roll No –
SAP ID – 40311170653
Topic -
Subtopic - Period I (1956-57 to 1975-76)

This period saw heavy deficits in balance of payments and extremely tight payments
position. This period witnessed three wars (1962 war with China; 1965 and 1971 war
with Pakistan), several droughts (the most severe being the droughts of 1965-66 and
1966-67), and the first oil shock in 1973. The position of balance of payments during the
plan period has been discussed below:

Second Plan:- The overall balance of payments account, on an average, faced a huge
deficit of $1373 million during this period. Balance of payments deficit as percent of
GDP has also increased from a deficit of 0.17 percent during the first plan period to 1.038
percent during second plan. BOP account turned from a surplus of $38 million in 1955-
56 to a huge deficit of $620 million in 1957-58 which decreased to $10.1 million in 1960-
61. Foreign exchange reserves were sufficient to cover 4.91 months of imports. The
highly unfavorable BOP during this period was the result of (a) heavy imports of capital
goods to develop heavy and basic industries (b) the failure of agricultural production to
rise to meet the growing demand for food and raw materials from rapidly growing
population and expanding industry.
Regarding the structure of balance of payments, balance of trade showed a huge deficit
out of which only 20 percent of this deficit was financed by invisible earnings and private
transfer payments. The deficit on current account (Table 4.1) was $693 million which
was quite high. Current account as percent of GDP showed a deficit of 2.26 percent.
Deficit on current account increased from $657 million in 1956-57 to $906 million in
1957-58 but then reduced to $ 824 million in 1960-61. If we look at capital account
figures, it reveals that capital account has shown a surplus in all the years of this planning
period. Capital account surplus averaged at $418.4 million during this period. Surplus
increased from $77 million in 1956-57 to $599 million in 1958-59 and further to $723
million in 1960-61. Capital account as a percent of GDP has also shown a surplus of
1.368 percent during this period. But still this surplus was insufficient to finance the
deficit given by current account during this period which led to substantial and mounting
deficit in balance of payments.

Third Plan:- The structure of balance of payments during the third plan was not very
much different from the structure obtained in the second plan. The average deficit of
balance of payments account was $171 million in the third plan. Average balance of
payments deficit as a percent of GDP was 0.09 percent during this period. Foreign
exchange reserves, on an average, were sufficient to cover 2.89 months’ imports which
was quite less. During this plan, balance of payments account has turned from a deficit of
$135 million in 1961-62 to a surplus of $38 million in 1965-66.
Component-wise analysis shows that the last three years of the plan did witness an
increase in money value of exports but this was too insufficient to fill up the gap in
balance of payments because of fast expanding imports under the impact of defence and
development which has stagnated the balance of trade deficit. There was almost no
surplus on account of invisibles and private transfers which stagnated and led to
deterioration in the balance of current account which stood at a deficit of $835.6 million
during this plan period and as a result, current account as a percent of GDP showed a
deficit of 1.74 percent. The entire deficit in balance of current account was met largely by
foreign aid inflows, mostly in the form of loans and external assistance. Thus, balance on
capital account showed a good surplus of $801.4 million during this period. Capital
account surplus as a percent of GDP was 1.77 percent. Capital account balance increased
from $510 million in 1961-62 to $865million in 1964-65 and further to $1100 million in
1965-66, thus neutralizing a bit the bad impact of current account deficit on balance of
payments position.

Annual Plans (1966-67 to 1968-69):- Notwithstanding the successive droughts and

consequent food imports, balance of payments difficulties were less acute during this
period as compared to second and third plan periods. The period of three annual plans
witnessed a good surplus of $58 million in the balance of payments account (Table 4.1).
BOP as a percent of GDP showed a surplus of 0.04 percent while foreign exchange
reserves financed 2.72 percent of imports during these annual plan periods. Various
measures taken by the government to smoothen the situation led to a surplus in BOP
account during these years.

Fourth Plan period (i.e. 1969-70 to 1973-74):- During this period, BOP account showed
a substantial surplus of $356 million (Table 4.2). BOP account witnessed a surplus of
$357 million in year 1969-70 which decreased to $28 million in 1971-72 and further
remained at the same level in year 1973-74, while foreign exchange reserves also
increased and were able to cover 4.76 percent of imports. Balance of payments as percent
of GDP showed a surplus of 0.134 percent (Table 4.4). The favorable balance of
payments situation during this period was due to adoption of objective of self-reliance by
the government during this plan. Accordingly, government managed to restrict imports
and succeeded in expanding exports. On the imports side, restriction of imports was made
possible through good crops in 1968-69 and 1970-71 and consequent significant
reduction of imports of food grains. On the exports side, vigorous export promotion
measures succeeded in boosting exports of traditional as well as non-traditional items.
But balance of payments account witnessed a huge deficit of $599 million in year 1974-
75 due to substantial increase in price of crude oil in early 1974 (by about four times)
which had an adverse effect on the oil importing developing countries as their import bill
has soared to new high levels. However, this deficit again turned into a surplus of $707
million in year 1975- 76. As far as components of BOP account are concerned, this
period showed a much better position in current account. Current account showed a
remarkable surplus of $684.4 million during this period.
Name - Hiral H Gohil
Class – Tybcom
Div & Roll No - F-131
SAP No.:40311170866
Topic: Balance of Payment ( Pre and Post 1991)
Sub Topic: BOP of India – Period 2 (from 1976-77 to 1979-80)

Learning Objective: We got to learn about how our country had started developing in 1976-77 ,
liberalization increased , increase in GDP and increase in Import and Export of our country .

This relatively short period was a golden period as far as balance of payments is concerned. The
average surplus in balance of payments account amounted to $5462 million during fifth plan
period .
Surplus in balance of payments increased from $1905 million in 1976-77 to $ 2141 million in
1977-78 which decreased to $1308 million in 1978-79 and further to $405 million in 1979-80.
Balance of payments as a percent of GDP showed a good surplus of 1.056 percent during this
golden period. Import cover of foreign exchange reserves has increased to 6.72 61 percent .
This was due to good surplus of $620 million in current account during this period. The two
factors which were responsible for this surplus were :- (i) rapid increase in private remittances
from oil exporting countries (ii) and the value of exports was also rising under the impact of
promotional measures. There was a strong growth in exports of nearly 31 percent in 1975-76
over 1974-75 and of 23 percent in 1976-77 over 1975-76. The international environment was
also conducive as world trade rose by over 8 percent a year in value terms during this period.
A significant feature is that the growth in the value of exports during 1976-77 was more an
outcome of increase in the volume (13.4 per cent) than in the rise in the unit value (5.1 per cent)
realization. Moreover, India's trade with West Europe has tilted in its favour; in the past it had
invariably been adverse.
As a result of this, Indian economy adjusted to first oil shock rather quickly (Debroy, 1998).
Another important point of this period was that during 1977-78 and in the next two years, the
Janata Government followed a policy of haphazard import liberalization at a time when export
boom had almost petered out.
The result was reemergence of trade deficit from 1977-78 onwards which led to a deficit in
current account to $290 million in 1978-79 and further to $685 million in 1979-80. Current
account as a percent of GDP showed a surplus of 0.1 percent during this period.
However, capital account showed improvement during this very short period. Capital account
witnessed a surplus of $968.6 million during fifth plan period. Surplus on capital account
increased from $905 million in 1976-77 to $1090 million in 1979-80. Thus, on the whole, for the
first time since planning era started, India was in a comfortable position in its external account as
balance of payments decreased at non-significant rate during this period.
During 1976-77, India's exports to the USA increased by 15.6 per cent, to Japan by 32.3 per cent,
to the Soviet Union by 8.1 per cent and to Britain by 31.1 per cent. Proportionately, the growth
of exports in the last few years was confined to the free currency area and our trade with the
rupee payment countries ceased to grow as fast as it had earlier.

In the last four years, food, fertilizers and fuel (i.e. crude oil and petroleum products) had
constituted nearly 58 per cent of the country's import bill. But with the improvement in the
domestic output of food and fertilizers, the pressure of imports of these items has declined to
around 51 per cent during the year under review.

Steel, which was earlier imported in large quantities to meet indigenous demand, became a net
export earner. It added nearly Rs 200 crores to the country's exchequer. Similarly, export of
engineering goods touched the Rs 550 crores mark in 1976-77-recording almost an eight-fold
increase from Rs 67 crores in 1968-69.

In value terms, there was, however, an increase in the import of items such as petroleum and
petroleum products, textile fibre, non-ferrous metals, pearls, precious and semi-precious
stones(unwrought), vegetable oils and fats, machinery, electric and non-electric.

The outlook of India's exports in 1977-78 would depend largely on the state of economy in the
country as well as trading conditions in overseas markets. According to some experts, the world
trade in 1977 may not grow at the same rate as in the previous year, because the real rate of
growth of the industrialized countries might somewhat slow down this year.

But even with the slow pace of economic recovery in developed countries, India's exports
showed a significant increase compared to world trade both during 1975-76 and 1976-77.
Further, the liberalization in the import policy for 1977-78 and other appropriate measures
adopted by the Janata government should lead to an increase in industrial production, help in the
maintenance of the price line and strengthen the production base for vigorous export effort.
The performance of exports during the year under review was particularly impressive in a
number of manufactured and semi -manufactured products like iron and steel, engineering goods,
gems and jewelry and leather products. Even in regard to primary products the overseas demand
was fairly buoyant in certain items.
Name - Panchal Jagruti K.
Class - Tybcom
Div & Roll No. - F-125
Sap no. 40311170509
Sub topic - Period III (1980-81 to 1990-91)
This period comprised of sixth and seventh plan period. This decade was also known as decade
of difficulties in balance of payments. There was a sea change in balance of payments position
since 1980-81.

Sixth Plan:- The average deficit in balance of payments account was $4813 million during the
sixth plan. Balance of payments as a percent of GDP showed a deficit of 0.56 percent. Deficit
increased from $1140 million in 1980-81 to $2523 million in 1981-82 which decreased to $561
million in 1983-84.This deteriorating position of BOP was due to huge deficit faced by current
account. Average deficit in current account touched the astronomical figure of $2658.2 million
during this period. Thereason behind the increase in deficit was tendency of flattening out of
private remittances from middle-east countries. India had to meet its balance of payments deficit
during this period with the withdrawals of SDRs and borrowings from IMF. However, capital
account has shown a surplus of $968.6 million during this period. Capital account surplus
increased from $1665 million in 1980-81 to $ 2087 million in 1982-83 and further to $3147
million in 1984-85. Capital account as a percent of GDP was 1.14 percent. Foreign exchange
reserves were sufficient to cover 4.12 percent of imports during this period.
Seventh Plan:- The average deficit in balance of payments decreased tremendously to $9 million
in seventh plan from $4813 million in sixth plan. Balance of payments deficit as percent of GDP
also declined to 0.008 percent. This was due to substantial Increase in capital account receipts to
$2042.2million. While the deficit in current account has increased to $5823.4 million due to
highest ever current account deficit of $7997 million in 1988-89 which showed a quite disturbing
situation of Indian economy during this period .Capital account as a percent of GDP was 2.41
percent and current account deficit as a percent of GDP was 2.16 percent while foreign exchange
reserves were now sufficient to cover 3.4 months’ imports. Though capital account has shown a
surplus but that was not able to completely offset the adverse impact of deficit of current account
on Indian economy. Further, the gulf crisis in 1990-91 aggravated the situation whose immediate
impact was rise in balance of payments to an astronomical figure of$2492 million. Balance of
payments deficit as percent of GDP was 0.88 percent in 1990-91. Current account deficit
averaged to $9680 million in 1990-91. Current account as a percent of GDP has shown a deficit
of 3.4 percent during this year. Thus, this period ended up with a deteriorated and quite uncertain
situation. Trend analysis reveals that though capital account increased at significant rate but
current account balance decreased at significant rate.
 Thus, above discussion brings out that before liberalization policy was launched, India’s balance
of payments account showed a mixed trend of improvement and deterioration. This account
almost remained in deficit during first, second and third plans mainly because of heavy imports
of capital goods to develop heavy and basic industries and failure of agricultural production to
rise to meet the growing demand of food and raw material.

However, the period comprising fourth and fifth plans was the golden period as far as balance of
payments position is concerned as this period faced huge surpluses in balance of payments
account. This period witnessed new confidence in the external sector. But the second oil shock
was the precursor of another phase of strain on India’s balance of payments. Balance of
payments situation started deteriorating during early 1990’s with underlying expansion in
economic activities, exports and imports grew in tandem, keeping the trade deficit at a high level.
The invisible remittances also deteriorated sharply due to stagnation in workers’ remittances and
rising interest burden due to building up of external debt. The severity of balance of payments
crisis in early 1990s can be gauged from the fact that India’s foreign currency assets depleted
rapidly from US $ 3.7 billion in August 1990 to US $ 975 million on July 12,1991.

On the whole, the balance of payments situation during pre-liberalization period deteriorated to
such an extent that there was an immense need of powerful actions by the government to reduce
the deficit and to enhance the international competitiveness of the economy.
Name - Katyani Pandey
Class - TYBcom
Div & Roll No - F-129
SAP No - 40311170516
Topic- Balance of payment
Sub Topic- BOP 1991 Crisis

Introduction:
The economic reform of 1991 brought the global transition in India. The transition towards a
newer India, and a change in perspective of government towards the role of private players and
markets in the economy. The Balance of Payment crisis followed by pledging of Gold reserves,
taking loan from IMF and other structural adjustment programme (sponsored by IMF and World
Bank) were the initial steps towards the economic reforms that were launched. The BOP crisis
was the result of decades of imprudent economic policies that India followed. The institutional
arrangements of the economy, pre 1991, were adequate then but were eventually deteriorating
the fiscal situation of the country. The role of fiscal policy in India’s history is significant. In
1991, India ran into an unsustainable deficit in balance of payments. The country ran into large
deficits for long time and as a result faced the balance of payment crisis.
Report:
The problem was long standing one, it took a serious turn in early 1990’a and continued. Two
factors have contributed to the worsening of BOP scenario.
1. Large imbalance
2. Loss of confidence
Large imbalance
 The continuing deficit became massive around the second half of 1990 Because of Gulf
crisis
 The oil prices rose sharply resulting in an equally steep rise in value of imports of oil,
which in turn greatly expanded the size of deficit .
 Rs499Cr p.m in June-Aug 1990, value of imports rose massively to Rs1221Cr p.m in
following six months.
 The following scenario largely accounted for doubling of BOP deficit from an average of
Rs619Cr p.m in June-Aug 1990 to Rs.1229Cr p.m in six months that followed.
 Worsening the situation
 Indian workers employed in Kuwait had to be airlifted back to India, as a result
their remittance ceased to flow.
  Further UN trade embargo on Iraq let to cessation of export to Iraq and Kuwait
and a rapid depletion of reserves on account of rising BOP deficits.
 Effectiveness of measures
 The Government of several measure to compress import
 The deficit got reduced from Rs1412Cr p.m in Oct-Dec 1990 to Rs710Cr p.m and
further to Rs361cr p.m in Apr-June 1991
Loss of confidence
 Despite the reduction in deficit the payment crisis did not disappear. It appeared as if the
world outside had lost confidence in the country’s ability to manage crisis.
 There was expectation that country would default on debts and rupee would fall in market
heavily.
 Effect of expectations
 Created longer leads in payment for import and lags in realisation of export
proceeds.
 Drying up of short term credits from a level of about $2billion in 1989-90 to over
half billion in 1990-91, the interest on credits too went sharply.
 Loans and borrowings
 Commercial borrowing abroad with maturity of over a year or medium term loans
also went down
 Drying up of commercial loans was accompanied by a net outflow of NRI
deposits which began in Oct 1990 and continued in 1991
 All this culminated in a payment crisis of unprecedented dimension in the first quarter of
1991-92.
Conclusion:
 The Indian economy is much more globalized now than ever before.
 The periodic pressures on BOP have been addressed through policy changes.
 While BOP has again come under stress since 2011-12 as the situation is not as serious as
it was in 1991.
 Because the structure of the economy has changed in a fundamental way with flexible
exchange rate and greater depth in financial market beside much larger foreign exchange
reserve than those in 1991.
 However there is a need to bring the CA D to substantial levels in the short run to boost
our competitiveness, raise growth potential and bring in more stable flows into the
economy.
Name – Mariya Mubarak
Class – TYBcom
Div & Roll No. - F-130
SAP No. - 40311171129
Topic – Balance of Payment of India (Pre and Post 1991)
Subtopic – BOP of India After 1991
After the economic reforms were introduced in the Indian economy, the gap between receipts from
foreign countries and payments made to them started narrowing for the initial five six years. But
after 1995-96 this gap again started widening. These results show that the significant changes
which have taken place during the post-reforms period could not contribute positively to narrow
down the deficit in the balance of trade.
In the Post reforms period, the growth rate of Indian imports is much higher than the Indian
exports. India’s import bill has been continuously rising because of rapid industrialization
necessitating increasing imports of machinery and equipment, industrial raw materials, technical
knowhow etc. Secondly Policy of import liberalization and globalization has encouraged imports.
The balance of payment position after 1991 can be explained on the basis of :-
 Eighth Plan: - The balance of payments situation in eighth plan period has been distinctly
different from the situation that prevailed in the earlier period as balance of payments
situation improved considerably during this plan period. New economic reforms were
initiated in 1991 to deal with the adverse current account position of India. The efforts were
made to step up the exports and the efforts have become successful as balance of payments
account showed a tremendous surplus of $3861.2 million during this period. Balance of
payments as a percent of GDP showed a surplus of 1.37 percent during eighth plan and
foreign exchange reserves were able to finance around 7 months’ imports which were
mostly originated from excessive borrowings and large inflows of external assistance.

However, Economic Survey (1995-96) observed, “The development in India’s trade and
payments over the past 5 years mark a noticeable structural change towards a more stable
and sustainable balance of payments”. Regarding the position of current account, it shows
that current account deficit declined to $3716.4 million in eighth plan period from $ 5823.4
million in seventh plan. Current account deficit as a percent of GDP was 1.12 percent.
Current account deficit declined from $3526 million in 1992-93 to $3369 million in 1994-
95 but further increased to $4619 million in 1996-97, while capital account surplus
averaged at $7577.6 million. Capital account as a percent of GDP showed a surplus of 64
2.69 percent. Surplus on capital account increased tremendously from $2936 million in
1992-93 to $9695 million in 1993-94 and further to $11412 million in 1996-97 due to
liberalization measures taken by the government on capital account.

 Ninth plan: - During this period, India’s balance of payments remained fairly well while
facing turbulence in the international economic and financial markets. Infact, balance of
 payments in the ninth plan remained comfortable with substantial reserve accumulation
supported by strong capital flows. Balance of payments account witnessed a handsome
surplus of $6552 million during this plan period. BOP/GDP showed a surplus of 1.68
percent during this period. The surplus of balance of payments account increased from
$4511 million in 1997-98 to $6402 million in 1999- 00. The improvement in balance of
payments account was made possible largely because of dynamism in export performance
and sustained buoyancy in invisible receipts.

However, this surplus declined to $5868 million in year 2000-01 as there were pressures
on balance of payments due to sharp downturn in the international equity prices and
successive increases in interest rates in U.S. and Europe; but the situation eased with the
mobilization of funds under the India Millennium Deposits, which helped to revert the
declining trend in reserves and enhanced confidence in the strength of India’s external
sector. As a result, balance of payments situation experienced a huge surplus of $11757
million in the last year 2001-02. Average current account deficit was $2700.4 million.
Current account deficit decreased from $5500 million in 1997-98 to $2666 million in 2000-
01 but showed a surplus of $3400 million in year 2001-02 after a gap of 24 years (current
account surplus was earlier recorded in 1977-78), which is a remarkable improvement in
balance of payments position of India. Current account deficit as a percent of GDP also
averaged at 0.66 percent. The net capital inflows also improved during this period, thus
resulting in large build-up of reserves. Average surplus on capital account was $9252.6
million during ninth plan period and capital account as percent of GDP increased to 2.32
percent during this period.

 The Tenth Plan: -period was also quite comfortable as far as balance of payments is
concerned. The growing strength of India’s balance of payments observed in the
postreform period since the crisis of 1991 continued in 2005-06. Balance of payments as a
percent to GDP has shown a surplus of 3.87 percent. The surplus of balance of payments
account increased from $16985 million in 2002-03 to $31421 million in 65 2003-04 due to
a surplus in current account to the extent of $1104 million but then declined to $ 15052
million in 2005-06 due to burgeoning trade deficit on account of rising oil prices in 2003-
04 and 2004-05.Current account surplus as a percent of GDP was 0.5 percent. The current
account, after being in surplus during 2001-02 to 2003- 04, reverted to a deficit in 2004-
05. This was despite a robust growth in net invisibles account fueled by software exports
in private transfers.

The current account deficit is attributable to the widening trade deficit, driven primarily by
the rise in international prices of petroleum products & gold. Even in the years when there
were some surpluses on the current account, India had deficit on goods and services
account and a relatively larger trade deficit (Economic Survey, 2007-08). While the capital
account surplus showed a huge improvement as average capital account surplus amounted
to $21300.3 million in tenth plan period. Capital account surplus as a percent of GDP
increased to 3.48 percent during this period. On the whole, tenth plan period was quite
comfortable as far as balance of payments is concerned as capital account increased at
significant rate leading to significant increase in balance of payments.
Name - Dubariya Hiral
Class - TYBcom
Div & Roll No. - F-126
SAP No. - 40311170916
Topic- Balance of Payment ( Pre and Post 1991)
Sub topic- Comparison/Analysis between pre and post on BOP.
INTRODUCTION
A large number of studies have already been conducted regarding the foreign trade &
balance of Payment position but no such study has so far been conducted which gives the
comparative picture of foreign trade and balance of payment position in both pre and post
reforms period. Hence in this background the present study is undertaken with a view to
achieve the following objectives
 To study the growth of foreign trade in pre and post reforms period.
 To work out the balance of payments in pre and post reforms period.
 To suggest ways and means for accelerating India’s Foreign Trade.
DATA AND METHODOLOGY
The present study is based upon the time series secondary data collected from various
published sources of Government Agencies. The data has been gathered from Economic
Survey of Govt.The study broadly covers the period of 45 years from 1970-71 to 2014-15.
In order to achieve the objectives of the study the entire period is divided into two sub
periods viz. 1970-71 to 1989-90 is taken as pre-reforms period and 1990-91 to 2014-15 is
considered as post reforms period. Annual Growth rate of India’s exports and imports,
Compound annual growth rate of India’s exports and imports and balance of Payment
position is calculated in order to draw the inferences.
RESULTS AND DISCUSSIONS .
The results of the study is based upon the discussion such as analysis of compound annual
growth rate of exports and imports, annual growth rate of Indias balance of payment position
of pre and post reform periods. The results and the discussions of the study are presented as :
Compound Annual Growth Rate of Exports in Pre-Reforms and Post Reforms Period-
The post reforms period in India has been characterized by high growth rates of exports
which have often been attributed to the reforms process. Reforms have enhanced export
competitiveness. Manufacturing sector has registered improvements in exports. The reforms
have contributed not only to an increase in export volume but also to a moderate shift into
higher quality. Table-I shows the Annual Growth rate of India’s exports during pre-reforms
period as well as post-reforms period. The Annual growth rate of exports is fluctuating in
both the periods because of many reasons. It does not give the clear picture of growth of
 exports. Therefore, compound annual growth rate is calculated. The compound annual
growth rate of exports in the pre- reforms period was 16.44 % whereas in the post reforms
period the compound annual growth rate went up to 17.66 %. The table clearly shows that
exports have increased during post reforms period although the impact of economic reforms
on exports is not very significant but still it is positive.
Compound Annual Growth Rate of Imports in Pre-Reforms and Post-Reforms Period
There has been a sharp increase in the import during post-reforms period. This
development is the result of repeated devaluation of Indian rupee and increasing import
intensity of both production and consumption during the post-reforms period. The process of
structural reforms has further increased Indian imports. Table-2 shows the annual growth
rate of India’s imports during pre and post-reforms period. Data clearly shows that like
exports annual growth rate of imports in both the periods is also fluctuating because of many
reasons. It does not give clear picture of the growth rate of imports. Therefore, compound
annual growth rate is calculated. The table shows that the compound annual growth rate of
imports was 17.56% which increased to 18.05% in the post-reforms period. It can be said
that economic reforms have increased imports significantly. The CAGR of Imports is higher
than that of exports even in the post reforms period. It is important to mention here that the
Indian exports are not increasing at expected rate instead imports are increasing because of
liberalized trade policies. It is also pertinent to mention here that the aim of the post-
independence growth strategy was to reduce the dependence on the imports but the
government has not succeeded in this direction.
CONCLUSION AND POLICY IMPLICATIONS
Thus it can be concluded that on one hand, the exports are getting the rising share in world
market but Indian market has greater absorption capacity for imports. Greater import
demand may partly be attributed to free competition and better consumer goods. But as long
as imports are higher than exports trade balance will remain adverse. In fact Indian economy
was opened to world economy to improve balance of payment position but so far this
objective has not been achieved. The Economic Reforms were started with the objective of
creation of a dynamic export sector in the economy which can help in the overall growth of
the economy. After more than two decades of the reforms process, the export sector has
shown very little improvement which tells the sad story of reforms. The following policy
implications have been emerged on the basis of the above discussions.
Name – Mittali Pandya
Class - TYBcom
Div & Roll No. - F-122
SAP No. - 40311170519
Topic- Balance of Payment (Pre and Post 1991)
Sub topic- CURRENT POSITION OF BOP

The Economic Survey 2019-20 expressed satisfaction that India’s external sector has gained
further stability in the first half of 2019-20, with an improvement in Balance of Payments (BoP)
position, anchored by capital flows through FDI, FPI and ECBs; receipt of robust remittances
and contraction of CAD.
The Balance of Payments position improved to USD 433.7 billion by September, 2019 from
USD 412.9 billion of forex reserves in March, 2019. This is on the back of Current Account
Deficit (CAD) narrowing further to 1.5 per cent of GDP in the first half of 2019-20 from 2.1 per
cent in 2018-19. Net FDI inflows remained buoyant attracting USD 24.4 billion in the first eight
months of 2019-20, much higher than the corresponding period of 2018-19. Net overseas
remittances in the first half of 2019-20 were more than 50 per cent of total receivables in 2018-
19, standing at USD 38.4 billion.
India's Current account deficit (CAD) narrowed to 0.9% of GDP between July-September 2019
as compared to 2.9% of GDP during the same quarter in 2018. The narrowing of CAD is led by
shrinking trade deficit which reduced to USD 38.1 billion from USD 50 billion a year ago.
The narrowing of trade deficit is led by subdued economic activities India, as a result of which
imports reduced at a faster pace than exports.

India’s current account deficit (CAD) at US$ 14.3 billion (2.0 per cent of GDP) in Q1 of 2019-
20 narrowed from US$ 15.8 billion (2.3 per cent of GDP) in Q1 of 2018-19 but was higher than
US$ 4.6 billion (0.7 per cent of GDP) in the preceding quarter.

The CAD contracted on a year-on-year (y-o-y) basis, primarily on account of higher invisible
receipts at US$ 31.9 billion as compared with US$ 29.9 billion a year ago.

Net services receipts increased by 7.3 per cent on a y-o-y basis, mainly on the back of a rise in
net earnings from travel, financial services and telecommunications, computer and information
services.

Private transfer receipts, mainly representing remittances by Indians employed overseas, rose to
US$ 19.9 billion, increasing by 6.2 per cent from their level a year ago.

In the financial account, net foreign direct investment was US$ 13.9 billion in Q1 of 2019-20 as
compared with US$ 9.6 billion in Q1 of 2018-19.
Foreign portfolio investment recorded net inflow of US$ 4.8 billion in Q1 of 2019-20 – as
against an outflow of US$ 8.1 billion in Q1 of 2018-19 – on account of net purchases in both
debt and equity markets.

Net inflow on account of external commercial borrowings to India was US$ 6.3 billion in Q1 of
2019-20 as against an outflow of US$ 1.5 billion a year ago.

In Q1 of 2019-20, there was an accretion of US$ 14.0 billion to the foreign exchange reserves
(on BoP basis) as against a depletion of US$ 11.3 billion in Q1 of 2018-19.

Foreign portfolio investments recorded a net inflow of USD 2.5 billion up from USD 0.2 billion
in Q2 2018-19. And, the net foreign direct investments was USD 7.4 Billion equivalent to Q2
2018-19.
Slowing economic activities which in turn has lowered imports into the economy is further
expected to narrow down the current account deficit for the Q3 2019 (October 2019-December
2019).
Capital Account data was reported at -96.610 USD mn in Sep 2019. This records an
increase from the previous number of -818.795 USD mn for Jun 2019. India’s BoP:
Capital Account data is updated quarterly, averaging 3.590 USD mn from Jun 2009 to
Sep 2019, with 42 observations. The data reached an all-time high of 766.967 USD mn
in Jun 2013 and a record low of -818.795 USD mn in Jun 2019. India’s BoP: Capital
Account data remains active status in CEIC and is reported by Reserve Bank of India.
Cr. Capital Account data was reported at 89.689 USD mn in Sep 2019. This records an
increase from the previous number of 86.757 USD mn for Jun 2019. India’s BoP: Cr:
Capital Account data is updated quarterly, averaging 98.347 USD mn from Jun 2009
to Sep 2019, with 42 observations
Name:- Gaurav C Ahirrao
Roll No:- 38 ‘F’
SAP :- 40311170868
TOPIC:- Policies to improve Balance Of Payment & Trade.

Balance Of Payment & Trade – Policies To Improve Trade

There are a number of policies that can be introduced to achieve an improvement in a India’s
trade balance some of them focus on changing the growth of demand, others look to improve the
supply-side competitiveness of an economy. As with any macroeconomic 'problem' effective
policies are those that target the underlying causes.

Improving Trade Performance in the Short and Long Run:

 Expenditure - reducing policies - designed to control demand and limit spending on

imports - squeeze on demand, encouraging rising private sector saving
 Expenditure-switching policies - designed to change the relative prices of exports and
imports - this causes changes in spending away from imports and towards
domestic/export production
 Improving the supply-side performance of the economy - to boost competitiveness -
economic reform is a long-run strategy
 Improving macroeconomic stability to make a country more attractive to inward
investment - investment can raise productivity and increase a country's capacity for
exporting
 Demand management: Reductions in government spending, higher interest rates and
higher taxes could all have the effect of dampening consumer demand reducing the
demand for imports. This leads to an increase in spare productive capacity which can
then be allocated towards exporting.
 Natural effects of the economic cycle: One would expect to see a trade deficit fall during
a recession so some of the deficit is partially self-correcting – but this does little to
address the problems of a structural balance of payments problem.
 A lower exchange rate: The central bank of a country might decide that a lower exchange
rate provides a suitable way of improving competitiveness, reducing the overseas price of
exports and making imports more expensive
For those countries operating with a managed exchange rate, the government may decide to
authorise intervention in the currency markets to manipulate the value of the currency

Supply-side improvements:

 Policies to raise productivity, measures to bring about more innovation and incentives to
increase investment in industries with export potential are supply-side measures designed
to boost exports performance and compete more effectively with imports. The time-lags
for supply-side policies to have an impact are long.
 Policies to encourage business start-ups successful small businesses with export potential
 Investment in education and health-care to boost human capital and increase
competitiveness in fast-growing and high value industries such as bio-technology,
engineering, finance, medicine

Investment in modern critical infrastructure to support businesses and industries involved in

international markets.