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BALANCE OF PAYMENT
DEFINITION
Balance of payments is a statistical record of a countrys transactions with the rest of the world over a certain period of time presented in the form of double entry book keeping. Receipt from foreigners is recorded as a credit with a positive sign whereas payment to foreigners is recorded as a debit with a minus sign.
SIGNIFICANCE
The balance of payments provides detailed information about the demand and supply of a countrys currency. It signals its potential as a business partner for the rest of the world. A countrys balance of payments also reveals its competitive position in the world economy.
COMPONENTS
The international transactions of a country are grouped under Current account Capital account Official reserve account The current account presents export and import of goods and services whereas capital account includes all purchases and sales of assets (physical/financial). The official reserve account covers all purchases and sales of international reserve assets such as foreign exchange, gold and SDRs (Special Drawing Rights). As per the Balance of Payment Manual (Fifth Edition), BoP comprises current account, capital account, errors and omissions, and change in foreign exchange reserves. Under current account of the BoP, transactions are classified into merchandise (exports and imports) and invisibles. Invisible transactions are further classified into three categories. The first component is Services comprising travel, transportation, insurance, government not included elsewhere (GNIE), and miscellaneous. Miscellaneous services include communication, construction, financial, software, news agency, royalties, management, and business services. The second component of invisibles is income. Transfers (grants, gifts, remittances, etc.) which do not have any quid pro quo form the third category of invisibles. Under capital account, capital inflows can be classified by instrument (debt or equity) and maturity (short- or long-term). The main components of capital account include foreign investment, loans, and banking capital. Foreign investment comprising foreign direct investment (FDI) and portfolio investment consisting of foreign institutional investor (FIIs) investment and American depository receipts /global depository receipts (ADRs/GDRs) represents non-debt liabilities. Loans (external assistance, external commercial borrowings [ECB], and trade credit) and banking capital including nonresident Indian (NRI) deposits are debt liabilities.
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[2]
(US$ million)
2007-08 2008-09 2009-10 201011PR 2010-11 H1 (AprilSept. 2010)PR 107331 176213 -68883 39283 21517 -17309 26004 -47366 -29599 38950 3036 5674 2011-12 H1 (AprilSept. 2011)P 150909 236674 -85765 52923 31060 -9025 30887 -54705 -32842 41061 705 10592
Item
2006-07
I 1. 2. 3. 4.
5. 6. II 1.
III IV V
Current Account Exports Imports Trade balance Invisibles (net) a) Non-factor services b) Income c) Transfers Goods & services balance Current account balance Capital Account Capital account balance i. External assistance (net) ii. External commercial borrowings (net) iii. Short-term debt iv. Banking capital (net) of which Non-resident deposits (net) v. Foreign investment (net) of which a) FDI (net) b) Portfolio (net) vi. Rupee debt service vii. Other flows (net) Errors and omissions Overall balance Reserves [increase (-) / decrease (+)]
128888 190670 -61782 52217 29469 -7331 30079 -32313 -9565 45203 1775 16103
166162 257629 -91467 75731 38853 -5068 41945 -52614 -15737 106585 2114 22609
189001 308520 -119519 91604 53916 -7110 44798 -65603 -27914 7395 2439 7861
182442 300644 -118203 80022 36016 -8038 52045 -82187 -38181 51634 2890 2000
250468 381061 -130593 84647 48816 -8238 53140 -81777 -45945 61989 4941 12506
(-)92164 20080
(-)13441 (-)13050
During the first half (H1April-September 2011) of 2011-12, CAD in absolute terms was higher than in the corresponding period of the previous year, mainly due to higher trade
[3]
Invisibles The invisibles account of the BoP reflects the combined effect of transactions relating to international trade in services, income associated with non-resident assets and liabilities, labour and property, and cross-border transfers, mainly workers remittances.
[4]
[5]
[6]
[7]
[8]