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Getting Smarter Series Balance of Payments
Getting Smarter Series Balance of Payments
BOP shows the net difference in the flow of money between India and Rest of the world (RoW). If India’s receipts are
greater than its outflows, it demonstrates a BoP Surplus and vice versa.
Balance of
Payments
Capital and
Current A/C Financial
A/C
Capital account records all international purchases and sales of assets such as money, stocks, bonds, etc. It
also includes foreign investments in India and loans to India
When a foreign company invests in a
business by taking majority control, the
investment in the economy is included
Foreign Direct Investment (FDI)
under FDI. (Think of Walmart-Flipkart
deal!) The recent run-rate is at USD 10
bn/quarter*.
A BOP deficit occurs when more dollars are going out of the economy than what are coming in the economy. A high
deficit reflects negatively on the currency. Why?
Ways to manage deficit: Why is a huge/unsustainable BOP a bad macroeconomic
condition to have? It creates a vicious circle
Source: https://www.rbi.org.in/
Balance of Payments : The current dynamics
• Oil is sustaining at multi year high and the strong domestic demand is keeping imports high. Collectively,
the trade deficit is worsening and averaging close to USD 20 bn in the recent months.
• Unlike goods, where India has a large deficit, on the services front there was a trade surplus of $105
billion in FY22 against $88.6 billion in FY21 and this number continues to improve cushioning the
current account. India’s Current Account Deficit is seen at ~ 2.3 per cent of GDP in FY23.
• FPI witnessed a sharp decline for seven months to April 2022, withdrawing a massive net amount of
over USD 21.2 billion from equities. A continuation of this trend will worsen the BOP outlook for FY23.
• On the other hand, FDI and ECBs have maintained their healthy pace of inflows of USD 4 bn/month in the
recent months helping the flows.
• The next data release for FY22 is expected at the end of June 2022. We hope this version of Getting
Smarter series will help you in understanding the news better!
Disclaimer
Disclaimer: In this material DSP Investment Managers Pvt. Ltd. (the AMC) has used information that is publicly available, including
information developed in-house. Information gathered and used in this material is believed to be from reliable sources. The AMC
however does not warrant the accuracy, reasonableness and / or completeness of any information. The above data/statistic are given
only for illustration purpose. The recipient(s) before acting on any information herein should make his/their own investigation and seek
appropriate professional advice. This is a generic update; it shall not constitute any offer to sell or solicitation of an offer to buy units of
any of the Schemes of the DSP Mutual Fund.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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