Balance of payment

Introduction

Balance of payment is a systematic record of all economic

transactions in a period between one country and rest of the world.
It also shows the relationship between one country’s total payment
to all other countries and its total receipts from them. It is, thus, a
statement of payment and receipts on international transactions.

“A systematic record of all economic transactions between the

residents of the reporting country and of foreign countries during a
given period of time.” — Kindle Berger

It may also be important to note that Balance of payment is

different from Balance of trade because BOT includes only the
difference between the value of visible export and import. Visible
items are only material goods exported and imported. It is also
known as merchandise account of exports and imports.

On the other hand BOP is a more comprehensive concept because it

covers both visible as well as invisible items. Invisible items are not
recorded in customs returns e.g. services, banking, and
transportation.

Thus, BOP is a broader term than BOT. If exports are greater than
imports, BOP will be favourable and if exports are lesser than
imports ,BOP will be adverse and if exports are equal to imports
BOP will be in equilibrium.
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OBJECT
The chief purpose of this project is to
To study and compare the components of BOP of India with respect
to its neighbouring countries

To find how BOP affect exchange rate

To find the various factors those cause disequilibrium

To suggest views to attain BOP equilibrium in India.

SCOPE OF BOP

The balance of payments (BOP) is the method countries use to

monitor all international monetary transactions at a specific
period. Usually, the BOP is calculated every quarter and every
calendar year. All trades conducted by both the private and
public sectors are accounted for in the BOP to determine how
much money is going in and out of a country. If a country has
received money, this is known as a credit, and if a country has
paid or given money, the transaction is counted as a debit.
Theoretically, the BOP should be zero, meaning that assets
(credits) and liabilities (debits) should balance, but in practice,
this is rarely the case. Thus, the BOP can tell the observer if a
country has a deficit or a surplus and from which part of the
economy the discrepancies are stemming.
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Conclusion:

The balance of payment situation started improving since 1992-

93. There was a satisfactory balances of payment position in
that period, the reasons are
(1) High earnings from invisibles.
(2) Rise in external commercial borrowings, and
(3) Encouragement to foreign direct investment.
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