Balance Of Payment

All sub Accounts

Balance Of Payment

Economic exchange between residents and non residents in World.

It will always be zero.

At global level, International Monetary fund maintains BOP.

At National Level, Central Bank Maintains BOP.

 BOP
Current Capital
Forex
Account Account
 Current Account

Visible Invisible

Goods

Import Export
Trade Deficit

Trade Surplus = Export of Goods > Import of Goods

Balanced Trade = Export of Goods = Import Of Goods

Trade Deficit = Export of Goods < Import Of Goods

 Invisible

Services Income Transfer

Profit Dividend Interest

Current A/C

Current Account Surplus

Current Account Deficit

MCQ #1

Balance of Trade includes?

a) Goods only
b) Services only
c) Both Goods and Services
d) None of Above
MCQ#2

Which of the following is included in Invisible Part of

Current Account?

a) Services
b) Remittances
c) Income
d) All of the Above
MCQ #3

Which of the following is not included in BOP?

a)Current A/C
b)Capital A/C
c) Forex
d)None of the Above
Thank You
 BOP
Current Capital
Forex
Account Account

Accommodative
Autonomous Transaction
Transaction
 Capital Account

Borrowing (External
Commercial Investment Banking Capital
Borrowing)

Maximum 2.5bn $ can • ADR

be converted into • FCNR
• GDR
Rupee • NRERA
• IDR
• NOR
• FDI
• FPI
FDI V/S FPI
FDI FPI
Foreign Direct Investment Foreign Portfolio Investment
Investment more than 10 percent in Investment Up to 10 % in Indian
Indian Company Economy
More stable Less Stable

Role In management and Production No role in Management and Production

Generates employment Does Not Generates employment

More GDP growth Less role In GDP growth

0% Foreign Investment
• Foreign Investment is prohibited in
• Atomic energy
• Railway operations (except Metro & infra dev.)
• Tobacco Products
• Real Estate Business
• Farm Houses
• Chit Funds
• Nidhi Companies
• Betting Gambling Casino & Lottery.
Foreign Investment

Two routes :

Automatic Route: Foreign entity doesn’t require Indian Govt’s approval

Approval Route: prior to investment, they’ve to get approval from the

Govt of India’s respective Administrative Ministry/ Department (+
Commerce Ministry).

FIPB (Foreign Investment promotion board abolished

If Investment is more than 5000cr then permitted by cabinet
committee on economic affair (commerce Ministry)
Nation Specific approval

Pakistan
Afghanistan
China
Nepal
Bhutan
Bangladesh
Myanmar

IF FDI came from these nations then need government

approval
India’s FDI rules for E-Commerce

Inventory based Model: No FDI permitted

Market based Model: 100 % FDI permitted

FDI TOP 5 SECTORS AND NATION

Sectors: Nation:

• Computer Software & • Singapore

Hardware • U.S.A.
• Services Sector
• Trading
• Mauritius
• Automobile Industry • Netherlands
• Telecommunications • Japan
 Forex

• Foreign Currency Asset

• Gold

• Special Drawing Rights

• Reverse Transche Position

• Largest forex reserves: 1) China ($3 Trillion)> 2) Japan > 3)

Switzerland > 4) India
To Reduce CAD

• SEZ Act, 2005

• IFSC Act

• Sovereign Gold Bond

• 80:20 Ratio Gold etc.

SEZ Act, 2005
• Special Economic Zones is a specifically demarcated area of India which is
deemed as foreign territory for the purpose of Tax laws and Trade laws.

• Thus, exempted from aforementioned taxes (OR)/ subjected to lower rate of

taxes of Union and State Govts. This relief is for a specific time-period only,
which is called “Tax holiday”

• Union’s Commerce Ministry approves for SEZ

• 1965: Asia's first SEZ was set up in Kandla, Gujarat (At that time it was called
Export Processing Zone/EPZ). Currently we’ve 220+ SEZ in India.

• Baba Kalyani Report on SEZ

IFSC Authority Act, 2019

• IFSC (such as GIFT city) are setup under the SEZ Act.

• IFSC get relief / exemption in the Indian tax laws.

• Further, RBI, SEBI, IRDAI and other regulators’ norms also apply in relaxed manner.

• E.g. Bank branches in GIFT-city-IFSC are exempted from RBI’s CRR-SLR-PSL etc.
norms.

• 2019’s Act aim to setup a statutory International Financial Services Centres

Authority
IFSC Authority
• One Chairperson
• One member each nominated from RBI,SEBI, IRDAI, PFRDA
• few other members from Finance ministry etc –

• Tenure= 3 years.

• Re-appointment= Yes, possible.

• The IFSC Authority will regulate all financial services, products,

institutions in International Financial Services Centres of India.

• 2020-April: Government announced its headquarter will be at

Gandhinagar, Gujarat. (Since Gandhinagar is the only place with an IFSC
at present, i.e. GIFT City)
80: 20 Scheme For Gold

RBI’s 80:20 Scheme (2013-14) - RBI mandated that

minimum 20% of the imported gold must be exported
back.
Until then the Jeweller/ bullion dealers will not get
permission to (convert their rupees into dollars / foreign
currency) to import next consignment of gold. - RBI gets
this power under Foreign Exchange Management Act
(FEMA:
Facts
CAD (2020-21) = +0.9 % Of GDP

GOODS export After corona: Petroleum Product> Drugs> Pearl>

Iron and Steel
GOODS export After corona: Crude Oil> Gold > Petroleum
Product> Pearl> Coal

Services export After corona : Telecom, Computer, Information

services, Business Services, Transport Of goods

Services Import After corona: Business services R&D> Transport of Goods >
Telecom > computer> Information Services
India’s Trading Partner
Top Destination of Indian Exports Top Sources of Indian Import
1.USA 1. China
2. UAE 2. UAE (Gold, Crude Oil)
3. China 3. USA
4. Bangladesh 4. Saudi
5. Hong Kong 5. Iraq
6. Singapore 6. Switzerland
7. Netherland 7. Hong Kong (Diamonds)
8. Britain 8. Indonesia (due to Palm Oil)
9. Belgium 9. Singapore
10. Germany 10. South Korea
India’s Trading Partner
Trade Deficit (i.e. India imports more but exports less to Trade Surplus (i.e. India imports LESS but exports MORE
these nations) to these nations)

We’ve large Trade Deficit: with We’ve Trade Surplus: with

⇒ China (cheap electronics, toys etc.)
over 50 billion$
⇒ Middle Eastern nations (Oil import esp
Iraq, Saudi, Qatar).
⇒ Switzerland (Gold, Luxury items),
⇒ S. Korea (mobile, TV, electronics)
- USA (Chemicals, textile, services etc.),
- Britain, Netherlands, Turkey (Tea,
Spices, textile etc.),
- Bangladesh, Nepal (Food, medicine,
vehicles etc)

India’s top five trading partners are USA, China, UAE, Saudi Arabia
and Hong Kong
 MCQ # 1

Balance of Payments uses the _________ system of accounting.

A.Single-entry
B.Double-entry
C.Cash basis
D.Accrual basis
 MCQ # 2

The Current account of the Balance of Payments includes

transactions like ___________.
A. Imports and exports of goods and services
B. Transfers to and from abroad
C. Income to and from abroad
D. All of the above
 MCQ # 3

The transactions undertaken to cover the deficit or surplus of

autonomous transactions are called __________.
A. Accommodating transactions
B. Capital account transactions
C. Current account transactions
D. None of the above
 MCQ # 4

Which of the following are a part of the Capital account of

the Balance of Payments?
A.Foreign loans
B.Monetary movements
C.Foreign investments
D.All of the above
Thank you