Balance Of Payment

BALANCE OF PAYMENT OF INDIA

Presented byRANJIT SHETTY MAMTA BIST

31 04

WHAT IS BOP ? The balance of payments accounts are those that record all transactions between the residents of a country and residents of all foreign nations.  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 

BOP CONSISTS OF 

The Current Account



The Capital Account



Official Reserves Account



Errors and Ommisions

CURRENT ACCOUNT Includes all imports and exports of goods and services.  Includes unilateral transfers of foreign aid.  If the debits exceed the credits, then a country is running a trade deficit.  If the credits exceed the debits, then a country is running a trade surplus. 

CURRENT ACCOUNT 1.

Export & Import of Merchandise & Services

3.

Income Account (The income account accounts mostly for investment income from dividends and interest on credit and payments on foreign taxes.) Transfer payment (Grants received / given, Pvt.Transfer)

5.

CAPITAL ACCOUNT 1. 2. 3. 4.

Foreign Investment(FDI, FII) Banking Capital (NRI Deposits) Short term credit External Commercial Borrowings(ECB)

CAPITAL ACCOUNT If foreign ownership of domestic financial assets has increased more quickly than domestic ownership of foreign assets in a given year, then the domestic country has a capital account surplus.  On the other hand, if domestic ownership of foreign financial assets has increased more quickly than foreign ownership of domestic assets, then the domestic country has a capital account deficit. 

OFFICIAL INTERNATIONAL RESERVES 

The official international reserve account records the change in stock of official international reserve assets (also known as foreign exchange reserves) at the country's monetary authority .

Official reserves assets include gold reserves, foreign currencies, SDRs, reserve positions in the IMF.  {Special Drawing Rights (SDRs) are potential claims on the freely usable currencies of IMF members.}   

NET ERRORS AND OMISSIONS 

This is the last component of the balance of payments and principally exists to correct any possible errors made in accounting for the three other accounts



They are often referred to as "balancing items".

INDIA’S INTERNATIONAL TRADE

INDIA’S MAJOR TRADING PARTNERS

INDIA’S TRADE BASKET

APRIL – JUNE QUARTER 2008-09 (IN US $ BILLION ) Items

April-June 08

April-June 07

Jul-Sept 08

Jul-Sept 07

I.

Current Account

-10.7

-6.3

-12.5

-4.3

II .

Capital Account (net) (a to f)

12.9

17.5

7.8

33.5

a.Foreign Investment (i+ii)

5.9

10.1

4.3

13

(i) Foreign Direct Investment (ii) Portfolio Investment

10.1

2.6

5.6

2.1

-4.2

7.5

-1.3

10.9

b.Banking Capital

2.7

-0.9

2.1

6.6

0.8

-0.4

0.3

0.4

c.Short-Term Credit

2.2

1.8

NA

NA

d.External Assistance

0.3

0.2

NA

NA

e.External Commercial Borrowings f.Other items in capital account*

1.6

7.0

1.3

10.9

0.2

-0.7

NA

NA

Valuation change

0.2

3.0

NA

NA

Total (I+II+III)

2.4

14.2

-4.7

29.2

of which: NRI Deposits

II I.

(US $ BILLION)

INDIA’S BOP POSITION DURING THE 1ST HALF OF 2008-09 (APRIL-SEPT) Widening of Tr. Deficit resulting in large CAD, and moderation in capital flows.  Merchandise trade deficit recorded a sharp increase during April-November 2008 on account of higher crude oil prices for most of the period and loss of momentum in exports since September 2008.  Net surplus under invisibles remained buoyant, (led by increase in software exports and private transfers.)  Net capital inflows reduced sharply and have remained volatile during 2008-09 so far. 

…… CONTD 

While the net inward FDI remained buoyant net outward FDI also remained high during April-September 2008. So the gross capital inflows were higher on account of higher FDI inflows and NRI deposits during the period.



The revised short-term debt maturing up to March 2009, was estimated at around US $ 85 billion as at end-March 2008.

…. CONTD 

India’s merchandise exports during April-Nov 2008 increased by 18.7 % while imports recorded a higher growth of 32.5 %, largely due to the rise in (POL) imports. The rise in oil imports was primarily due to the elevated international crude oil prices, while the volume of oil imports moderated.

EXPORTS 

Decline in exports 1.1% drop to $ 12.7 billon in Dec 08 12.1% drop in Oct 08 9.9% drop in Nov 08



22% drop in Jan 09



Decline of exports in following sectors: (Dec 08) Handicraft & Handlooms 64% Textile 13% Gems & Jewellery 21%

EXPORTS 

Increase in exports Eng. Goods, Phama & Agri. Products (in the range of 19-25%)



India’s estimated exports $ 170 billion FY 08-09 $ 160 billion FY 07-08 Govt set target $ 200 billion

IMPORTS 

Imports grew by 8.8% to $ 20.25 b in Dec 08 Non oil imports 30.9% to $15.54 b (consisting of Capital Equipment & Proj. Goods) This suggests a robust domestic activity.

TRADE DEFICIT 

$ 7.57 Billion in Dec 08 $ 10.07 Billion in Nov 08



Tr. Deficit for 1st 9 months is $ 93.8 billion (74% higher than S 58.98 b in the year ago period )



Lower Oil Imports over Jan- Mar will enable to end this fiscal with a Tr. Deficit of about 40% higher than last year’s.

INWARD REMITTANCES 

Indicated to touch $ 40 billion in year 2008 (World Bank projection was $ 30 billion )



In 2007, No. 1 was India (27 billion) No.2 was China (25.7 billion)

Unlike FIIs flows, inward remittances are considered to be extremely sticky  Mostly from Blue collar workers(not more than $ 500 per month) 

FOREX RESERVES 

Import cover of India’s foreign exchange reserves declined to 11.2 months as at endSeptember ‘08 as against 14.4 months as at end-March ‘08 in sync with the fall in reserves, the RBI said in its half-yearly report on forex reserves.



As of January 16, 2009, foreign exchange reserves at US $ 252.2 billion declined by US $ 57.5 billion over the level at end-March 2008

ECB & FCCB Even after Indian govt. relaxed overseas borrowing norms for corporates, loans have failed to pick up.(as foreign banks curb lending)  During Oct- Dec 2008, inflows through ECB & FCCB were only $ 4.5 b against $ 8.1 b in Oct –Dec 2007 



Borrowings through ECB & FCCBs dipped 32% in 2008. Indian companies borrowed $ 22.7 b during the year as compared to $33.1 b in 2007

THE GLOBAL SCENE 

Commodity & oil prices have come down



Subprime crisis

IS INDIA HEADING TOWARDS BOP CRISIS OR NOT ? What is BoP crisis  Sufficient Forex Reserves  Volatility of FII 

FACTORS IMPACTING BOP Trade Agreement  Trade Policy  Currency Exchange Rate  Tax , Tariff and Trade Barriers 

IMPACT OF STIMULUS PACKAGE Trade Interest  Interest subversion  Exemption of Tax 

MEASURES FOR MAKING BOP FAVOURABLE Diversification of Trade  Development of New Industries  Concentrate on selected sectors  Concentrating on Frugal engineering skills  Incentives related to Trade 

Thank You