balance of payments ppt

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BALANCE OF PAYMENTS IN INDIA DONE BY: AMRUTHA KUBER ROMIKA JAIN BALAVARSHINI SONAM BAFNA NEHAL JAIN 2 nd B.COM(MM)

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Page 1: Balance of Payments Ppt

BALANCE OF PAYMENTS IN INDIA

DONE BY:

AMRUTHA KUBER

ROMIKA JAIN

BALAVARSHINI

SONAM BAFNA

NEHAL JAIN2ndB.COM(MM)

Page 2: Balance of Payments Ppt

INTRODUCTION

In economics, the balance of payments, (or BOP) measures the payments that flow between any individual country and all other countries. It is used to summarize all international economic transactions for that country during a specific time period, usually a year. The BOP is determined by the country's exports and imports of goods, services, and financial capital, as well as financial transfers. It reflects all payments and liabilities to foreigners (debits) and all payments and obligations received from foreigners (credits). Balance of payments is one of the major indicators of a country's status in international trade, with net capital outflow.

The balance, like other accounting statements, is prepared in a single currency, usually the domestic. Foreign assets and flows are valued at the exchange rate of the time of transaction.

Page 3: Balance of Payments Ppt

DEFINITION

The IMF definition: "Balance of Payments is a statistical statement that summarizes transactions between residents and nonresidents during a period." The balance of payments comprises the current account, the capital account, and the financial account. "Together, these accounts balance in the sense that the sum of the entries is

conceptually zero."

Page 4: Balance of Payments Ppt

Balance of payments identity

The balance of payments identity states that::

Current Account = Capital Account + Financial Account + Net Errors and Omissions

This is a convention of double entry accounting, where all debit entries must be booked along with corresponding credit entries such that the net of the Current Account will have a corresponding net of the Capital and Financial Accounts:

Where:

X = exports

M = imports

Ki = capital inflows

Ko = capital outflows

Page 5: Balance of Payments Ppt

HISTORY OF BOP IN INDIA

• India has a chronic deficit on current accounts.

What bridge the gap between payments and receipts are mainly external aid (especially nonproject assistance), tourism earnings, and remittances from Indians working abroad.

• Heavy imports of food grains and armament purchases caused a decline in India's foreign exchange reserves in the mid-1960s. An economic recovery from 1968–69, however, eased the problem, and by September 1970, foreign exchange reserves amounted to $616 million, as compared with $383 million by December 1965.

• Reserves declined to $566 million by the end of 1972 but increased to $841 million as of December 1975, despite massive deficits on current accounts, attributable to the quadrupling of oil import prices during 1973–74.

Page 6: Balance of Payments Ppt

• Foreign exchange reserves declined from $6,739 million at the end of 1979 to $3,476 million as of November 1982 but subsequently rose to $5,924 million by March 1987.

• The Gulf War crisis worsened the ratio of current account deficit to GDP. Foreign exchange reserves plummeted because of export losses in Kuwait, Iraq, and other nations.

• Remittances from Indian workers fell, and sudden price increases for oil imports caused an estimated loss to India of over $2.8 billion in earnings.

• By November 1993, however, India's foreign exchange reserves had risen to $8.1 billion, the highest level since 1951.

Page 7: Balance of Payments Ppt

• A substantial reduction in the trade deficit, increased inflows from foreign institutional investors, a stable exchange rate, and improved remittances all contributed in the recovery of reserves.

• Although export growth remained strong, the current account deficit tripled from 1993–94 to 1995–96.

• The increase was attributed to a continuing surge in imports and higher debt service requirements.

• However, between 1995 and 1998 the current account deficit shrank to about 1% of GDP due to increased textile exports and a liberalizing trade regime.

Page 8: Balance of Payments Ppt

• India's total external debt in 2001 was estimated at $100.6 billion. In 2000, the external debt-GDP ratio stood at around 20.7%, down from 41% in 1991/92.

• In the early 2000s, India's exports to East and Southeast Asia increased, including to Japan and South Korea.

• High growth rates were registered for textiles, chemicals and related products, engineering goods, and leather and manufactures.

Page 9: Balance of Payments Ppt

STATISTICS AS ON 2000Current Account -4,198 Balance on goods -12,193 Balance on services -1,582 Balance on income -3,876 Current transfers 13,453 Capital Account … Financial Account 9,616 Direct investment abroad -335 Direct investment in India 2,315 Portfolio investment assets … Portfolio investment liabilities 1,619 Other investment assets -1,136 Other investment liabilities 7,152 Net Errors and Omissions 670 Reserves and Related Items -6,087

Page 10: Balance of Payments Ppt

  Rupees crore

Item 2005-06 R 2006-07 PR 2007-08 P

1 2 3 4

A.

CURRENT ACCOUNT      

  1 Exports, f.o.b. 4,65,748 5,79,128 6,37,190

  2 Imports, c.i.f. 6,95,412 8,65,404 9,99,286

  3 Trade Balance -2,29,664 -2,86,276 -3,62,096

  4 Invisibles, Net 1,85,927 2,40,933 2,91,739

    a) 'Non-Factor' Services

1,02,611 1,43,604 1,50,923

    of which :      

    Software Services 98,678 1,31,144 1,48,887

    b) Income -26,116 -29,778 -23,845

    c) Private Transfers 1,08,565 1,26,088 1,63,709

    d) Official Transfers 867 1,019 952

  5 Current Account Balance

-43,737 -45,343 -70,357

Page 11: Balance of Payments Ppt

B. CAPITAL ACCOUNT      

  1 Foreign Investment, Net (a+b)

68,782 70,443 1,80,152

    a) Direct Investment

13,425 38,553 62,339

    of which:      

    i) In India 39,457 99,261 1,29,746

    Equity 26,239 73,969 1,00,777

    Reinvested Earnings

12,220 23,029 27,714

    Other Capital 998 2,263 1,255

    ii) Abroad -26,032 -60,708 -67,407

    Equity -16,718 -50,670 -50,179

    Reinvested Earnings

-4,834 -4,868 -4,363

    Other Capital -4,480 -5,170 -12,865

    b) Portfolio Investment

55,357 31,890 1,17,813

    In India 55,357 31,630 1,17,154

    Abroad 0 260 659

Page 12: Balance of Payments Ppt

  2 External Assistance, Net

7,592 7,937 8,465

    Disbursements 16,133 16,961 17,022

    Amortizations 8,541 9,024 8,557  3 Commercial

Borrowings, Net10,505 72,596 89,317

    Disbursements 63,476 94,332 1,20,173

    Amortizations 52,971 21,736 30,856  4 Short term Credit, Net 16,300 30,096 70,846

  5 Banking Capital 5,795 8,477 47,147

    of which: NRI Deposits, Net

12,457 19,574 706

  6 Rupee Debt Service -2,557 -725 -488

  7 Other Capital, Net @ 5,548 17,565 38,464

  8 Total Capital Account 1,11,965 2,06,389 4,33,903

Page 13: Balance of Payments Ppt

C Errors & Omissions

-2,332 6,143

D. Overall Balance [A(5)+B(8)+C]

65,896 3,69,689

E. Monetary Movements (F+G)

-65,896 -3,69,689

F. IMF, Net 0 0

G. Reserves and Monetary Gold

-65,896 -3,69,689

Page 14: Balance of Payments Ppt

April-December (2008-09) (P) April-December (2007-08) (PR)

Exports 133,527 113,614

Imports 238,864 182,894

Trade Balance -105,337 -69280

Invisibles, net 68,868 53772

Current Account Balance -36,469 -15508

Capital Account* 16,089 82,682

Change in Reserves#

(+ indicates increase;- indicates decrease) 20,380 -67,174

Page 15: Balance of Payments Ppt

CONCLUSION

India’s trade deficit on a balance of payments (BOP) basis has widened significantly by 52.04 percent to $ 105.33 26 billion in the nine  months (April-December) of fiscal year* 2008-09 from $ 68.28 billion in the comparable period in previous fiscal. The widening trade deficit is attributed to significant growth in imports. During the nine-month period (April-December, 2008) imports were up 30.60 percent to $ 238.86 billion from $ 182.89 percent in the comparable period in fiscal 2007-08.