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    Economic Growth and Development Balance of Payment: Amity International Business School

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    Amit Behal
    The document discusses balance of payments and foreign capital flows. It provides information on different types of capital flows including foreign direct investment, portfolio investment, and commercial bank lending. It also describes the purpose of balance of payments accounting which is to analyze a country's economic strengths and weaknesses in international trade. Key components of the balance of payments are the current account, which includes trade and services, and the capital account.

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    Economic Growth and Development Balance of Payment: Amity International Business School

    Uploaded by

    Amit Behal
    22 views11 pages
    The document discusses balance of payments and foreign capital flows. It provides information on different types of capital flows including foreign direct investment, portfolio investment, and commercial bank lending. It also describes the purpose of balance of payments accounting which is to analyze a country's economic strengths and weaknesses in international trade. Key components of the balance of payments are the current account, which includes trade and services, and the capital account.

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    Bop 1

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    The document discusses balance of payments and foreign capital flows. It provides information on different types of capital flows including foreign direct investment, portfolio investment, and commercial bank lending. It also describes the purpose of balance of payments accounting which is to analyze a country's economic strengths and weaknesses in international trade. Key components of the balance of payments are the current account, which includes trade and services, and the capital account.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    22 views11 pages

    Economic Growth and Development Balance of Payment: Amity International Business School

    Uploaded by

    Amit Behal
    The document discusses balance of payments and foreign capital flows. It provides information on different types of capital flows including foreign direct investment, portfolio investment, and commercial bank lending. It also describes the purpose of balance of payments accounting which is to analyze a country's economic strengths and weaknesses in international trade. Key components of the balance of payments are the current account, which includes trade and services, and the capital account.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 11

    Amity International Business School

    MODULE 6 ECONOMIC GROWTH AND DEVELOPMENT BALANCE OF PAYMENT

    Amity International Business School

    FOREIGN CAPITAL FLOW External Assistance


    Official Development Assistance Grants Non concessional Foreign flows
    Direct investment

    Private Capital Flow

    Portfolio Investment

    Concessional flows

    Commercial Bank Lending

    Others

    Amity International Business School

    BALANCE OF PAYMENT: ACCOUNTING OF FOREIGN TRANSACTIONS

    Balance of payment is a systematic record of all economic transactions between the residents of a country and residents of foreign countries for a specific period of time, usually one year.

    Amity International Business School

    PURPOSE -for economic analysis of countrys strengths and weaknesses in international trade and evaluating the economic position. It also invites government attention for corrective measures against the weak points -to reveal changes in composition and magnitude of foreign trade, so that if these changes prove to be obstacle for economic growth government can take remedial actions. - to indicate any future repercussions of countrys past trade performances. If there is continuous deficit, it shows growing international indebtedness and eventually financial bankruptcy. If there is growing surplus surpassing the absorption capacity then it results in high inflation.

    Amity International Business School

    CURRENT ACCOUNT: 1.Trade Account: Transactions related to merchandise imports and exports 2. Invisible Account: service transactions, Investment income (interest/ dividends) and Transfer Payments . Capital Account:(a) Short term capital movement- purchase of short term securities such as treasury bills, commercial bills and Acceptance bills etc - speculative purchase of foreign currency. - cash balance held by foreigners for reasons like war, political instability etc. - net balance of current account.

    Amity International Business School

    (b) Long term capital movement- direct investment in shares, bonds, real estate, physical assets with controlling power - portfolio investments in stock and bonds such as government securities without controlling power. - amortization of capital- repurchase and resale of securities earlier sold to or purchased from foreigners. (c) Changes in gold and foreign exchange reserves.

    Current Account + Capital Account = Change in Official Reserve Account

    Amity International Business School

    BALANCE OF PAYMENT DEFICIT OR SURPLUS

    Current A/c Balance Deficit / surplus

    Capital A/c Balance Deficit / surplus

    Trade A/c

    Invisible A/c

    (Current A/c + Capital A/c) Balance= Overall Balance = Official Settlement Entry
    7

    Amity International Business School

    Current A/C Deficit = X-M Financed through

    Capital A/C Surplus

    Official Settlement A/C

    Debt Crisis

    BOP Crisis

    Amity International Business School

    CAUSES OF DISEQUILIBRIUM IN BALANCE OF PAYMENTS 1)-PRICE CHANGESDeflation mainly cause surplus in BOP. On the other hand inflation may cause deficit in BOP. 2)-BUSINESS CYCLES 3)-STRUCTURAL CHANGES-Structural changes in an economy are caused by such factors as:a)-depletion of cheap natural resources, b)-change in technology, c)-change in consumers tastes and preferences. 4)-OTHER FACTORS A)-Disturbances or crop failure B)-Rapid growth in population leading to large scale of imports of food grains or wage goods. C)-Ambitious development projects requiring heavy imports of technology, equipment, machinery and technical know-how. D)-Demonstration effect of advanced countries on the consumption pattern of less developed countries.

    Amity International Business School

    Methods of correcting disequilibrium in BOP Monetary methods Deflation Exchange depreciation Devaluation

    Non-Monetary methods Import prohibition and quota system Import duties Export promotion Exchange control

    10

    Amity International Business School

    TRENDS IN INDIAS BALANCE OF PAYMENTS


    When the country began its planned program of development, India had a comfortable foreign exchange reserves. Thus not much attention was given to the balance of payment situation as the country pursued the inward looking import substitution policies. In fact the bop position was so comfortable that the country had surplus on this account during 1970-73. Strains began to appear on the bop with the 1st oil stock in 1973-74.oil import bill mounted substantially. Increase in the value of POL imports along with other goods, caused strain on balance on BOP. But the country was able to meet the situation without much problem Serious BOP problem began during the period 1980-92 which culminated in a full fledged crisis in the beginning of 1992. the problems started with the second oil stock of 1978-79 and where compounded by many other factors, such as gulf wars and shortage in NRI remittances. The BOP situation became so precarious that foreign exchange reserves came down to rock bottom level of 1.6 billions dollars. IMF was approached for credit facility and gold was pledged to the bank of England . This situation was somehow retrieved, but the need for comprehensive reforms became urgent. Thus the trade policy reforms under a full package of economic reforms were launched for achieving better growth rate of exports. Though the BOP has remained under strain during the year even after economic reforms were launched, in the recent years, there has been emergence of surplus on the current 11 account of BOP. This has happened mainly due to rapid growth in export of services,

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