Balance of Payment

Dr. A.K. Sengupta Former Dean, Indian Institute of Foreign Trade

1

Balance of Payment
1. A countrys balance of payments (BOP) is defined as the summary of all its economic transactions that have taken balance between the countrys residents and the residents of other countries during a specified time period 2. It is used as an indicator of a countrys political and economic stability 3. A consistently positive BOP reflects more foreign investments and money coming into the country and not much of its currency going out of the country 4. Adverse or negative BOP indicates more outflow of money compared to inflows 5. A surplus or positive BOP implies that a country has more funds from trade and investment coming compared to what it pays out to other countries

Since the crisis of 1991, Indias BOP has strengthened in the post reform period Indias current account balance interested surplus for 200102 to 2003-04 and exhorted or reverse trend since 2004-05 primarily due to stage vise in petroleum products Foreign investments, both direct and portfolio and inflow of non-resident deposits has been on the rise The invisibles compulsory services such as travel, transportation, software, hard compensated the trade deficit

BOP has a positive impact on a countrys currency appreciation conversely, a deficit BOP implies an excises of imports over exports Balance of payments include both visible and inv isible transaction The accounts used for computing BOP are