INDEX

   ACKNOWLEDGEMENT
  
OBJECTIVES OF BOP
   SCOPE OF BOP
   MEANING AND DEFINITIONS OF BOP
   APPLICATIONS OF BOP
   ANALYSIS AND COMPARISON OF BOP OF INDIA WITH ITS NEIGHBOURING COUNTRIES
   VIEWS
   CONCLUSION
   BIBLIOGRAPHY

OBJECTIVES
   To study and compare the components of BOP of India with respect to its neighboring
countries.
   To find how BOP affect exchange rate.
   To find the various factors that 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
This websiteforstores
in the BOP
data to as
such determine how much money is going in and out of a country. If a country has
cookies to enable
received essential
money, sitethis is known as a credit, and if a country has paid or given money, the
functionality, as well as marketing,
transaction is counted as a debit. Theoretically, the BOP should be zero, meaning that assets
personalization, and analytics. You
may change (credits) and liabilities
your settings at any time(debits) should balance, but in practice, this is rarely the case. Thus, the
or accept the
BOP default settings.
can tell the observer if a country has a deficit or a surplus and from which part of the
economy the discrepancies are stemming.
Privacy Policy

Marketing
Personalization

Analytics
MEANING AND DEFINITION OF BOP
Save Accept All
 

 
A statement that summarizes an economy’s transactions with the rest of the world for a
specified time period. The balance of payments, also known as balance of international
payments, encompasses all transactions between a country’s residents
residents and its
nonresidents involving goods, services and income; financial claims on and liabilities to
the rest of the world; and transfers such as gifts. The balance of payments classifies
these transactions in two accounts –
accounts – the
 the current account and the capital account. The
current account includes transactions in goods, services, investment income and current
transfers, while the capital account mainly includes transactions in financial
instruments. An economy’s balance of payments transactions and international
internat ional
investment position (IIP) together constitute its set of international accounts.

APPLICATIONS OF BOP


  The use of the IIP
I IP and BOP financial account to analyze vulnerability to external shocks
in a world of increasingly mobile financial
f inancial flows. The role of timely and comprehensive
balance of payments statistics: market expectations and uncertainties in fundamentals.
   The current account balance as an indicator of excess or under under-spending.
-spending. Temporary
and cyclical deficit /surpluses on the current account, and their impact on inflation and
country’s terms of trade. 
trade. 
   The use of BOP data for an understanding the movements in the exchange rate through
analysis of the supply and demand of foreign currencies driven by the trends in the BOP
components.
   The role of BOP data in the money market operations of central banks. Changes in the
net foreign assets of the central bank as important
i mportant explanat
explanatory
ory variables of changes in
the liquidity requirement in the money market.
This website stores data such as
cookies to enable  essential
 Trends insitethe financial account in response to financial market conditions and economic
functionality, as welldevelopments
as marketing, for understanding the link between a change in interest rate conditions
personalization, andandanalytics. You
the amount, direction, and structure of external financial flows.
may change your settings at any time
  Statistics
or accept the default settings. on international banking flows and stocks may be useful to understand issues
in the globalization of international banking and to help focus on the soundness of the
domestic banking system.
Privacy Policy
   The use of IIP data as an alternative way of assessing an economy's relations with the
Marketing rest of the world.
Personalization

Analytics
BOP OF INDIA 
Save Accept All
 

The balance of payments position during the First Plan period was quite satisfactory as the
country experienced a deficit in its current account only to the extent of Rs. 42.3 crore. In this
period, the inflow of foreign capital was only Rs. 13.6 crore and the foreign exchange reserve
was about Rs. 127 crore.

During the Fifth Plan period, due to the applicability of two factors like hike in oil prices arid
increase in the value of exports due to promotional measures, although A surplus in TRADE
BALANCE was attained in 1976-77 (Rs. 316 crore) but the plan experienced an increasing trend
in trade deficit to the extent of Rs. 3,179 crore. But due to higher entry of net invisibles, the
Fifth Plan ended with surplus of Rs. 3,082 crore.

The balance of payments position has recorded a total change since 1979-80. India started to
record a heavy deficit in its balance of payments since 1979- 80. Table 7.6 shows the growing
deficit in TRADE balance along with the growing deficit in its balance of payments position
during the Sixth to Tenth Plan.

Thus the table reveals that due to the mounting deficit in TRADE BALANCE, i.e., from Rs. 5,967
crore in 1980-81 to Rs. 6,721 crore in 1984-85, India maintained a huge deficit in its balance of
This website stores data such as
payments
cookies to enable to the
essential siteextent of Rs. 11,384 crore during the Sixth Plan period. Again due to a
persistent
functionality, as well as growing
marketing,deficit in TRADE BALANCE the cumulative deficits in the balance of payment
personalization,
duringand
theanalytics.
Seventh You
Plan rose further to Rs. 38,313 crores, showing the annual average deficit of
may change your settings at any time
Rs. 7,662 crore.
or accept the default settings.

Privacy Policy

Marketing
Personalization

Analytics

Save Accept All

 

INDIA AND ITS NEIGHBOURS

INDIA AND CHINA

China –India
 –India relations, also called Sino-Indian relations or Indo-China relations, refers to the
bilateral relationship between the People's Republic of China (PRC) and the Republic of
India. Historically, India and China have had relations for more than 2,000 years, but the
modern relationship began in 1950 when India was among the first countries to end formal
ties with the Republic of China (Taiwan) and recognize the PRC as the legitimate
government of Mainland China. China and India are the two most populous countries and
fastest growing major economies in the world.

BOP OF CHINA
Both foreign trade and international financing in China are state monopolies, with policies
and transactions administered
administered by the People's Bank of China (PBC). Among its various
functions, the PBC sets exchange rates for FOREIGN CURRENCIES. The PBC releases
FOREIGN EXCHANGE to the Bank of China, which plays a major payments role through its
branches in Hong Kong, Singapore, and other overseas financial centers. The government
has, overall, maintained a record of financial stability, linked to a policy of stringent
str ingent controls
over its international transactions. Adhering generally to a principle of self-reliance,
self- reliance, it has
resorted to the use of commercial credit at certain junctures but until the 1970s avoided
falling into long-term indebtedness as a means of financing major development goals. In the
period 1958 –60,
 –60, the Great Leap Forward and the succeeding years of economic
e conomic crisis
caused a sharp deterioration in China's international payments position. In 1960, large
negative clearing account balances with Communist countries (-$625 million) were even
more than the foreign exchange reserves of $415 million. By the end of 1964, however, the
This website stores data such as
cookies to enablenegative balance
essential site with Socialist nations had been reduced to $55 million, and China's net
functionality, asinternational
well as marketing,
financial resources stood at a surplus of $345 million, owing to monetary gold
personalization,holdings
and analytics. Youmillion and foreign exchange balances from trade with non-Communist
of $215 non -Communist
may change your settings at any time
countries
or accept the default amounting to $185 million. By 1965, the Chinese had completely cleared their
settings.
long-term debt to the former USSR, and by 1968, China had redeemed all national bonds
and was free of all long-term
l ong-term external and internal debts. Publication of official balance-of-
Privacy Policy
payments statistics was discontinued during the Cultural Revolution and not resumed until
Marketing September 1985. According to Western analyses, the period 1978 –  –81
81 saw a continuing
surplus in current accounts, as rising levels of imports were generally matched or exceeded
Personalization
by increases in exports over the same period. In addition, transfers of an estimated $1.1
Analytics
billion in 1978 and $1 billion in 1980, derived from increased earnings in tourism, shipping,
Save Accept All
 

and remittances from Hong Kong and other sources, resulted in overall current accounts
surpluses of $900 million and $1.2 billion in 1978 and 1980, respectively. China's drive to
industrialize under the Four Modernizations policy resulted in an unprecedented deficit on
capital accounts of $1.1 billion in 1978. The subsequent unilateral decisions to cancel $2.6
billion in contracts with Japan (1979) and $2 billion with Japan and Western nations (1981)
were interpreted by some observers as an indication of acute cash-flow problems and a
reordering of investment priorities at the highest levels. The trade account was helped by
the slow but steady devaluation that occurred after China went to a managed float
exchange rate system in January 1991. Tourism receipts and visitor figures also continued to
grow, passing pre-Tiananmen levels. Foreign investment boomed in the 1990s, with a total
of nearly $45 billion committed in 1998 alone. Approximately half of China's loans came
from the Asian Development Bank, the World Bank, and Japan; external debt reached $159
billion in 1998. A usually positive current account balance stockpiled China's reserves. In
1998, China had some $147 billion
billi on in official reserves, but state industries had accumulated
a huge amount of what was called triangular debt with the state banks and other lending
agencies. Government infrastructure and industrial projects received funding for goods that
could not be sold domestically in 1999 due to lower demand, losing money for each party
involved. In effect, external trade plays a secondary role in China's economy because of
normally high, unsatisfied domestic demand. Agreements with the WTO threaten to
increase China's dependence on foreign trade. China's external debt stood at $149.4 billion
in 2002.

The US Central Intelligence Agency (CIA) reports that in 2002 the purchasing power parity of
China's exports was $312.8 billion while imports totaled $268.6 billion resulting in a trade
surplus of $44.2 billion.

The International Monetary Fund (IMF) reports that in 2001 China had exports of goods
totaling $266 billion and imports totaling $232 billion. The services credit totaled $33.3
billion and debit $39.3 billion. The following table summarizes China's balance of payments
as reported by the IMF for 2001 in millions of US DOLLARS.
This website stores data such as
cookies to enable essential site
functionality, as well as marketing,
personalization,China
and analytics. You
may change your settings at any time
or accept the default settings.
Current Account 17,401

Balance on goods 34,017

Privacy Policy
Balance on services -5,933
Marketing
Balance on income
Personalization income -19,175

Analytics
Current transfers 8,492
Save CapitalAccept
AccountAll -54
 

Financial Account 34,832

Direct investment abroad -6,884

Direct investment in China 44,241

Portfolio investment assets -20,654

Portfolio investment liabilities 1,249

Other investment assets 20,813

Other investment liabilities -3,933

NET Errors and Omissions -4,732

Reserves and Related Items -47,447

COMPARISON BETWEEN BOP OF INDIA AND CHINA

The trends of India’s and China’s exports have been shown

s hown in Figure 1. It shows that the total
value of exports has increased during 1981-2014 in both the countries. In India, the value of
total exports has also shown a rise from 8437.35 US million dollars in 1980 to 294993 US million
dollars in 2014. The value of China’s total
total exports has increased from 21125 US million dollars in
1980 to 2170185 US million dollars
dollars in 2014. China’s exports growth has been tremendous as
compared to India. The productivity, lower wages and exploitation of economies of scale were
the reasons for higher exports in China.

The trends of India’s and China’s imports have been bee n exhibited in Figure 2.
2. During 1981-2014,
total value of imports has increased in both the th e countries. China’s imports of goods & services
have grown from 16876 US million dollars in 1980 to 1,428,434 US million dollars in 2014 while
India’s imports of goods & services
ser vices have surged from 14148 US million dollars in 1981 to
440,470 million dollars in 2012 at constant
constant prices 2005.China’s imports growth of goods &
This websiteservices has such
stores data also been
as found greater as compared to India. Both India and China were allowed
more imports
cookies to enable essentialflexible
site and liberal access to import requirements for actual users, consistent
functionality, as well
with theas marketing,
aim of strengthening and diversifying the production base of the economy.
personalization, and analytics. You
may change your
The settings
trends of at any time
India’s and China’s balance of payments current
cur rent account have been exhibited in
or accept the default settings.
Figure 3
3.. During 1981-2014 balance of payments current account for India showed a negative
trend all over the period. But, for China, the balance of payments current account showed a
Privacy Policy
favourable trend throughout the period. The reason for current account deficit in India was due
to several unfavourable factors such as deceleration in the growth of domestic oil production,
Marketing
bunching of repayment obligations to the IMF and other sources, limited availability of
Personalization
concessional assistance and a rise in debt service payments on external debt. The reason for
Analytics
higher favourable current account for China was from its invisible receipts.
Save Accept All
 

Conclusion

Balance of trade is the major component infusing the balance of payments. The balance of
payments position became deficit for India. This was an unhealthy sign. This unfavourable
balance of payments position retarded the growth rate of Indian economy. But, on the other
hand, China registered a favourable balance of trade that helped to promote the rate of
economy growth at a higher level. This helped China to boost the country’s image in the
international arena.

India and China have almost no commonalities in terms of history, culture, religion, language
l anguage
and political institutions. Although their conspicuous diversities make a comparison difficult,
attempt to relate the political economy and ensuring performance of these countries is un
avoidable and necessary for global reach.

INDIA AND PAKISTAN

Relations between India and Pakistan have been complex due to a number of o f historical and
political events. Relations between the two states have been defined by the violent partition of
British India in 1947, the Kashmir conflict and the numerous military conflicts fought between
the two nations. Consequently, their relationship has been plagued by hostility and suspicion.
The two South Asian countries somewhat overlap in areas of linguistics, demographics,
geography, and economics.

After the dissolution of the British Raj in 1947, two new sovereign nations were formed
formed—
—the
Dominion of India and the Dominion of Pakistan. The subsequent partition
partition of the former British
India displaced up to 12.5 million people, with estimates of loss of life varying from several
hundred thousand to 1 million. India emerged as a secular nation with a Hindu majority

population and a large Muslim minority, while Pakistan emerged also as a secular nation an
overwhelming Muslim majority population; later becoming an Islamic republic although its
This website stores data such as
cookies to enable essential
constitution site
guarantees freedom of religion to people of all faiths.
functionality, as well as marketing,
personalization, and analytics. You
BOP OF PAKISTAN
may change your settings at any time
or accept the default settings.
Pakistan, since independence, has been experiencing deficit (un-favourable) in its balance of
payment except the following five years i. e., 1950-51, 1954-55, 1955-56, 1958-59, and 1959-
Privacy Policy
60. In 1965-66, the balance of payment was highly deficit due to war against India.
Marketing
According to the Economic Survey of Pakistan 2010-11, imports of Pakistan are $ 32.3 billion
Personalization
and its exports are $ 24 billion. It is showing a deficit of $ 8.3 billion. Above situation is showing
Analytics
that Pakistan faces a continuous deficit in its balance of payment
Save Accept All
 

COMPARISON BETWEEN BOP OF INDIA AND PAKISTAN

GDP (Nominal) of India and Pakistan is $2050 billion and $250 billion respectively in 2014. On
PPP basis, GDP of India and Pakistan is $7,376 billion and $882 billion respectively. India is 9th
largest of the world in nominal method and 3rd largest economy in ppp method. Nominal

ranking
has GDPof Pakistan
($289 is 43
billion) and PPP
greater ranking
than is 26. India's economically largest states Maharashtra
Pakistan.

According to CIA Facebook sector wise GDP composition of India in 2014 are as follows :
Agriculture (17.9%), Industry (24.2%) and Services (57.9%). Sector wise GDP composition of
Pakistan in 2014 are : Agriculture
A griculture (25.1%), Industry (21.3%) and Services (53.6%).

GDP of India is 8.19 and 8.36 times more than Pakistan at nominal and ppp terms, respectively.
India crossed $1 trillion mark in 2007 and $2 trillion mark in 2014. While Pakistan have yet to
cross $1 trillion mark. In 1980, size of economy of India and Pakistan was $181 and $31,
respectively.

GDP of Pakistan at ppp terms is 3.53 times more than compare to nominal basis. This ratio for
India is 3.60.
Both country has been neck-to-neck in gdp per capita terms. Till 2006 in nominal basis and till
2008 in ppp basis, per capita income of pakistan was more than India. In 2014, GDP per capita
of India is more than Pakistan in both terms. Per capita Income of India is $1627 and $5855 in
nominal and ppp terms, respectively. Per capita Income of Pakistan in nominal and ppp terms is
$1343 and $4736, respectively. World rank of India is 145 (nominal) and 125 (PPP). World rank
of Pakistan is 152 (nominal) and 134 (PPP).Out of 33 Indian states/UTs, 24 states/UTs are more
richer than Pakistan.

Growth rate of Pakistan is estimated at 4.14% in 2014. India's growth rate is estimated at 7.17%
in 2014. During period 1980-2014, Average GDP growth of Pakistan was 5.02% compare to
India's 6.23% in same period.
This website stores data such as
cookies to enable essential site
Conclusion
functionality, as well as marketing,
Pakistan
personalization, scores high
and analytics. Youon income and consumption growth, poverty reduction and integration
may change your settings at any
with the world economy. time India has done very well in developing its human resource base and
or accept the default settings.
excelled in the field of science and technology. Both countries face a set of common problems --
the inherited legacy of a control mind-set
mind- set among the government and rent-seeking private
Privacy Policy
sector, widespread corruption, poor fiscal management, weak financial
f inancial system and congested
and overcrowded urban services. But there is an important and perceptible positive shift in
Marketing
most of the indicators of India since 1991. Export growth rates have almost doubled, GDP
Personalization
growth is averaging 6 to 7 percent in recent years, current account deficit is down and foreign
Analytics
capital flows for investment have risen several fold. The edge that Pakistan has gained over
India in most of these indicators until 1990 is fast eroding. Pakistan, on the other hand,
h and, has
Save Accept All
 

made greater progress in privatization of state owned enterprises and in attracting foreign
investors to expand power generating capacity in the country.

INDIA AND SRILANKA

India-Sri Lanka relations have generally been friendly, but were controversially affected by the
Sri Lankan Civil War and by the failure of Indian intervention during the war. India is
i s the only
neighbour of Sri Lanka, separated by the Palk Strait; both nations occupy a strategic position in
South Asia and have sought to build a common security umbrella in the Indian Ocean.[1]
Historically and culturally, the two nations have been considerably close, with 70% of Sri
Lankans continuing to follow Theravada Buddhism to this day.

BOP OF SRILANKA
Sri Lanka recorded a trade deficit of 828 USD Million in March of 2017 compared to 617 USD
Million gap a year ago. Exports rose 9.8 percent to 1042 USD Million and imports went up 19.4
percent to 1,869 USD Million. Balance of Trade in Sri Lanka averaged -484.62 USD Million from
2003 until 2017, reaching an all time high of -50.10 USD Million in May of 2003 and a record
low of -1100.70 USD Million in November of 2011.

Sri Lanka exports mostly textiles and garments (40% of total exports) and tea (17%). Others
include: spices, gems, coconut products, rubber and fish. Main export partners are United
States, United Kingdom, Germany, Belgium and Italy. Sri Lanka imports petroleum, textile
fabrics, foodstuffes and machinery and transportation equipment. Main import partners are
India, China, Iran and Singapore.

COMPARISON BETWEEN BOP OF INDIA AND SRI LANKA

India is developing into an open-market economy, yet traces of its past autarkic policies remain.
This website stores data such as
Economic
cookies to enable liberalization
essential site measures, including industrial deregulation, privatization of state-
functionality, as wellenterprises,
owned as marketing,and reduced controls on foreign trade and investment, began in the early
personalization, and analytics. You
1990s and served to accelerate the country's growth, which averaged under 7% per year from
may change your settings at any time
1997
or accept the to 2011.
default settings.

Sri Lanka continues to experience strong economic growth following the end of the 26-year
conflict with the Liberation Tigers of Tamil Eelam. The government has been pursuing large-
Privacy Policy
scale reconstruction and development projects in its efforts to spur growth in war-torn and
Marketing
disadvantaged areas, develop small and medium enterprises
enterp rises and increase agricultural
Personalization
productivity. The government's high debt payments and bloated civil service have contributed
Analytics
to historically high budget deficits, but fiscal consolidation efforts and strong GDP growth in
recent years have helped bring down the government's fiscal deficit.
Save Accept All
 

Conclusion

India's diverse economy encompasses traditional village farming,

f arming, modern agriculture,
handicrafts, a wide range of modern industries, and a multitude of services. Slightly less than
half of the work force is in agriculture, but, services are the major source of economic growth,
accounting for nearly two-thirds of India's output with less than one-third of its labor force.

The 2008-09 global financial crisis and recession exposed Sri Lanka's economic vulnerabilities
and nearly caused a balance of payments crisis. Agriculture slowed due to a drought and weak
global demand affected exports and trade. In early 2012, Sri Lanka floated the rupee, resulting
in a sharp depreciation, and took steps to curb imports. A large trade deficit remains a concern,
but strong remittances from Sri Lankan workers abroad help offset the trade deficit.
Government debt of about 80% of GDP remains among the highest in emerging markets.

OPINIONS ON BOP OF INDIA

In 2013 India was close to macroeconomic crisis with double digit inflation, very high current
account deficit (CAD), falling rupee, negative feelers from FED regarding quantitative easing etc.
The condition was so bad that India was grouped in Famous Fragile Five along with countries
like Turkey, Indonesia
I ndonesia etc and was at the top of the Macroeconomic Vulnerability Index. The
CAD was as high as 4.7%of GDP (it came down to 1.7% GDP in 2013-2014), since then the
macroeconomic condition has vastly improved with the surging foreign capital inflows largely
due to steps taken by the GOI and RBI. Although the condition of CAD was improving on one
hand, on the other, we had moderating capital inflows even after RBI provided ‘Special Swap
Window’.  
Window’.

To reduce the current account deficit rules like 80:20 for gold imports, which mandated that
the importers of the gold need to export 20% of the gold imported as the final product, were

This websiteintroduced
stores data(presently
such as the rule is scrapped since November 2014).
cookies to enable essential
Additionally, insite
last 18 months the price of crude oil has reduced from as high as $120 per
functionality, as well as marketing,
barrel to below $50 per barrel. This has greatly helped in reducing India’s import bill. 
bill.  
personalization, and analytics. You
may change Theyour settings at any
merchandise time deficit (US$ 31.7 billion during Q4 2014-15) contracted sharply on a q-o-
trade
or accept the default settings.
q basis on account of a larger decline in merchandise imports (13.4 per cent) than in
merchandise exports (10.4 per cent); however, in terms of y-o-y
y -o-y changes, the trade deficit in Q4
Privacy Policy
2014-15 widened marginally as exports registered a larger decline (15.4 per cent), than imports
(10.4 per cent).
Marketing
Personalization
Export growth in US $ terms improved
i mproved from negative 0.5% to 7.4% in Q1 2014-15, declined to
1.8% in Q2.
Analytics

Save Accept All

 

On a cumulative basis, the overall BOP during 2014-15

2014 -15 showed improvement over the
preceding year. Lower CAD, on the back
ba ck of contraction in trade deficit and marginal
improvement in the net invisible earnings, along with a sizable increase in net financial flows
enabled a large build-up
build-up of reserves. India’s trade deficit narrowed to US$ 144.2 billion in 2014-
2014 -
15 from US$ 147.6 billion in 2013-14. With modest increase in invisibles supported by some
improvement in net services receipts, the CAD tracked the trade deficit and shrank to US$ 27.5
billion in 2014-15 (1.3 per cent of GDP) from US$ 32.4 billion (1.7 per cent of GDP) a year ago.

HOW BOP AFFECT EXCHANGE RATE

A change in a country's balance of payments can cause fluctuations in the exchange rate
between its currency and foreign currencies. The reverse is also true where a fluctuation in
relative currency strength can alter the balance of payments. There are two different and
interrelated markets at work: the market for all financial transactions on the international
market (balance of payments) and the supply and demand for a specific currency (exchange
rate).

These conditions only exist under a free or floating exchange rate regime. The balance of
payments does not impact the exchange rate in a fixed-rate system because central banks
adjust currency flows to offset the international exchange of funds.

VARIOUS FACTORS THAT CAUSE DISEQUILIBRIUM

1. Development Schemes:

The main reason for adverse balance of payments in the developing countries is the huge
investment in development schemes in these countries. The propensity to import of the

This websitedeveloping
stores datacountries
such not increases for want of capital for industrialization. The exports, on the
as increase
other hand, may because these countries are traditionally primary producing
cookies to enable essential site
countries.
functionality, as well asMoreover
marketing, the volume of exports may fall because newly created domestic industries
may and
personalization, need them. All
analytics. Youthis leads to structural changes in the balance of payment resulting in
may change your settings
structural at any time
disequilibrium.
or accept the default settings.
2. Price-Cost Structure:

Privacy Policy
Changes in price-cost structure of export industries affect the volume of exports and create
disequilibrium in the balance of payments. Increase in prices due to higher wages, higher cost
Marketing
of raw materials, etc. reduces exports and makes the balance of payments unfavorable.
Personalization

Analytics

Save Accept All

 

3. Changes in FOREIGN EXCHANGE RATES:

Changes in the rate of exchange is another cause of disequilibrium in the balance of payments.
An increase in the external value of money makes imports cheaper and exports dearer; thus,
imports increase and exports fall and balance of payments become unfavourable. Similarly,
Areduction in the external value of money leads
le ads to a reduction in imports and an increase in
exports.

4. Fall in Export Demand:

There has been a considerable decline in (he export demand for the primary goods of the
underdeveloped countries as a result of the large increase in the domestic production of
foodstuffs raw materials and substitutes in the rich countries. Similarly, the advanced countries
also find a fall in their export demand because of loss of colonial markets. However, the deficit
in the balance of payment due to the fall in export demand is more persistent in the
underdeveloped countries than in the advanced countries.

5. International Borrowing and Lending:

International borrowing and lending is another reason for the disequilibrium in the balance of
payments. The borrowing country tends to have unfavourable balance of payments, while the
lending country tends to have favourable balance of payments.

6. Cyclical Fluctuations:

Cyclical fluctuations cause cyclical disequilibrium in the balance of payments. During

depression, the incomes of the people in foreign
f oreign countries fall. As A result, the exports of these
countries tend to decline which, in turn, produces disequilibrium in the home country's balance
of payment.  
MEASURES TO ATTAIN BOP EQUILIBRIUM IN INDIA
This website stores data such as
cookies to enable essential site
1.Trade
functionality, as well Policy Measures: Expanding Exports and Restraining Imports:
as marketing,
personalization, and analytics. You
may change TRADE policy measures
your settings at any time to improve the balance of payments refer to the measures adopted to
or accept the default settings.
promote exports and reduce imports. Exports may be encouraged by reducing or abolishing
export duties and lowering the interest rate on credit used for FINANCINGexports. Exports are
also encouraged by granting subsidies to manufacturers and exporters. On the other hand,
Privacy Policy
imports may be reduced by imposing or raising tariffs (i.e., import duties) on imports of goods.
Marketing
Imports may also be restricted through imposing import quotas, introducing licenses for
Personalization
imports. Imports of some inessential items may be totally prohibited.
Analytics

Save Accept All

 

Method 2# Expenditure-Reducing Policies:

The important way to reduce imports and thereby reduce deficit in balance of payments is to
adopt monetary and fiscal policies that aim at reducing aggregate expenditure in the economy.
The fall in aggregate expenditure
expenditure or aggregate demand in the economy works to reduce
imports and help in solving the balance of payments problem.

BIBLIOGRAPHY 

www.wikipedia.com  
www.wikipedia.com
www.investopeda.com
www.investopeda.com  
www.imf.org  
www.imf.org
www.scribd.com 
www.scribd.com 
www.yourarticlelibrary.com  
www.yourarticlelibrary.com
www.nationsencyclopedia.com  
www.nationsencyclopedia.com
www.ahsankhaneco.blogspot.ae  
www.ahsankhaneco.blogspot.ae
www.indexmundi.com

www.economicsdiscussion.com  
www.economicsdiscussion.com
This website stores data such as
www.nationmaster.com
www.nationmaster.com  
cookies to enable essential site
functionality, as well as marketing,
personalization, and analytics. You
may change your settings at any time
or accept the default settings.

Privacy Policy

Marketing
Personalization

Analytics

Save Accept All

 

This website stores data such as

cookies to enable essential site
functionality, as well as marketing,
personalization, and analytics. You
may change your settings at any time
or accept the default settings.

Privacy Policy

Marketing

Personalization

Analytics

Save Accept All