PRIYANSH_12522_ASSIGNMENT_INTERNATIONAL.TRADE

BALANCE
OF
PAYMENT
Established under the Gujarat Private Universities Amendment Act 2011 and recognized under section 22 and 2(f) of UGC
INTERNATIONAL TRADE PROCEDURES AND

DOCUMENTATION
An Assignment submission for
Subject Code: BBA404T
IAR NUMBER: 12584
Presented by: Mr. Kartavya Gehlot
Submitted to: Dr. Murari
CONTENT TABLE
1. DEFINITION
2. COMPONENTS
3. DIFFERENCE BETWEEN BOP AND BOT
4. IMPORTANCE OF BALANCE OF PAYMENTS
5. EXCHANGE RATE AND BALANCE OF PAYMENTS: RUPEE CONVERTIBILITY
6. INDIA'S BALANCE OF PAYMENTS: VIABLE OR VULNERABLE?
DEFINITION OF BALANCE OF PAYMENTS (BOP)
THE BOP IS A SYSTEMATIC RECORD OF A

COUNTRY'S ECONOMIC TRANSACTIONS WITH
THE REST OF THE WORLD. IT INCLUDES THE
TRADE OF GOODS AND SERVICES, FINANCIAL
TRANSFERS, AND CAPITAL FLOWS. THE BOP IS
DIVIDED INTO THREE MAIN COMPONENTS: THE
CURRENT ACCOUNT, THE CAPITAL ACCOUNT,
AND THE FINANCIAL ACCOUNT.
Components of Balance of Payments:
1. Current Accounts:
Merchandise (Goods) and Services
3. Financial Accounts:
Factor Income Payments
Direct foreign Investment
Transfers Payments
Portfolio Investment
Financial Derivative
2. Capital Accounts:
Reserve Assets
Loans
Investments to/from abroad
Stored foreign exchange reserves
Capital Transfers
Acquisition/Disposal of non-produced , non-
financial Assets
Other capital Investment
EXCHANGE RATE AND BALANCE OF PAYMENTS:
RUPEE CONVERTIBILITY
1. EXCHANGE RATE: RUPEE CONVERTIBILITY REFERS TO THE ABILITY TO
FREELY EXCHANGE THE INDIAN RUPEE FOR OTHER CURRENCIES AT MARKET-
DETERMINED RATES.
2. BALANCE OF PAYMENTS: IT IMPACTS THE BALANCE OF PAYMENTS BY

INFLUENCING THE EASE WITH WHICH INTERNATIONAL TRANSACTIONS CAN
OCCUR, AFFECTING THE INFLOW AND OUTFLOW OF FOREIGN EXCHANGE.
3. CAPITAL FLOWS: CONVERTIBILITY CAN ATTRACT FOREIGN INVESTMENT AND

FACILITATE TRADE, BUT IT ALSO EXPOSES THE ECONOMY TO RISKS FROM
VOLATILE CAPITAL FLOWS.
4. GOVERNMENT POLICY: THE DEGREE OF CONVERTIBILITY IS DETERMINED BY

GOVERNMENT POLICY, WITH COUNTRIES TYPICALLY TRANSITIONING FROM
LIMITED CONVERTIBILITY TO FULL CONVERTIBILITY GRADUALLY,
CONSIDERING ECONOMIC STABILITY AND EXTERNAL VULNERABILITIES.
IMPORTANCE OF BALANCE OF
PAYMENTS
ECONOMIC POLICY TRADE
HEALTH IMPLICATIONS RELATIONSHIPS
INDICATOR BOP INFLUENCES
A SURPLUS OR DEFICIT IN BOP DATA INFLUENCES THE EXCHANGE RATES,
THE BOP CAN SIGNAL THE FORMULATION OF WHICH, IN TURN,
ECONOMIC HEALTH OF A ECONOMIC POLICIES. FOR AFFECT TRADE
NATION. FOR INSTANCE, A EXAMPLE, A DEFICIT MIGHT RELATIONSHIPS.
CONTINUOUS DEFICIT LEAD TO POLICIES AIMED UNDERSTANDING
MIGHT INDICATE AN OVER- AT BOOSTING EXPORTS OR THESE RELATIONSHIPS
RELIANCE ON FOREIGN REDUCING IMPORTS. IS CRUCIAL FOR
BORROWING. INTERNATIONAL TRADE
STRATEGIES.
BOP CRISIS IN THE 90S AND SUBSEQUENT DEVELOPMENTS
• BOP CRISIS IN THE 1990S: INDIA FACED A SEVERE BALANCE OF PAYMENTS
CRISIS IN THE EARLY 1990S DUE TO DWINDLING FOREIGN EXCHANGE
RESERVES, UNSUSTAINABLE FISCAL DEFICITS, AND A WIDENING CURRENT
ACCOUNT DEFICIT.
• REFORMS INITIATED: IN RESPONSE, INDIA INITIATED SIGNIFICANT ECONOMIC
REFORMS IN 1991, INCLUDING LIBERALIZATION OF TRADE AND INVESTMENT
POLICIES, CURRENCY DEVALUATION, AND FISCAL CONSOLIDATION.
• IMPACT OF REFORMS: THESE REFORMS LED TO INCREASED FOREIGN
INVESTMENT, IMPROVED EXPORT COMPETITIVENESS, AND A MORE OPEN AND
RESILIENT ECONOMY.
• SUBSEQUENT DEVELOPMENTS: INDIA'S ECONOMY EXPERIENCED RAPID
GROWTH IN THE FOLLOWING DECADES, BECOMING ONE OF THE WORLD'S
FASTEST-GROWING MAJOR ECONOMIES. FOREIGN EXCHANGE RESERVES
INCREASED SUBSTANTIALLY, PROVIDING A BUFFER AGAINST EXTERNAL SHOCKS.
• CONTINUED CHALLENGES: DESPITE PROGRESS, CHALLENGES REMAIN, SUCH
AS SUSTAINING HIGH GROWTH RATES, MANAGING INFLATION, AND ADDRESSING
INCOME INEQUALITY. HOWEVER, THE BOP CRISIS OF THE 1990S SPURRED
INDIA’S BALANCE OF PAYMENTS : VIABLE OR VULNERABLE?
• VIABLE ASPECTS: INDIA'S BALANCE OF PAYMENTS (BOP) IS VIABLE BECAUSE

IT HAS ENOUGH FOREIGN CURRENCY RESERVES TO COVER ITS INTERNATIONAL
TRANSACTIONS. THIS MEANS IT CAN PAY FOR IMPORTS AND MEET ITS FOREIGN
DEBT OBLIGATIONS.
• VULNERABLE ASPECTS: HOWEVER, INDIA'S BOP CAN BE VULNERABLE
BECAUSE IT DEPENDS ON FACTORS LIKE EXPORTS, FOREIGN INVESTMENT, AND
GLOBAL ECONOMIC CONDITIONS. IF THESE FACTORS WEAKEN, IT CAN LEAD TO
IMBALANCES, LIKE A LARGE TRADE DEFICIT OR CURRENCY DEPRECIATION.
• GLOBAL FACTORS: CHANGES IN GLOBAL OIL PRICES, INTEREST RATES, OR
ECONOMIC SLOWDOWNS IN MAJOR TRADING PARTNERS CAN AFFECT INDIA'S
BOP.
• POLICY IMPACT: GOVERNMENT POLICIES, LIKE TRADE AGREEMENTS OR
CURRENCY INTERVENTIONS, CAN ALSO INFLUENCE THE BOP'S STABILITY.
THANK
YOU

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BALANCE

INTERNATIONAL TRADE PROCEDURES AND

THE BOP IS A SYSTEMATIC RECORD OF A

2. BALANCE OF PAYMENTS: IT IMPACTS THE BALANCE OF PAYMENTS BY

3. CAPITAL FLOWS: CONVERTIBILITY CAN ATTRACT FOREIGN INVESTMENT AND

4. GOVERNMENT POLICY: THE DEGREE OF CONVERTIBILITY IS DETERMINED BY

• VIABLE ASPECTS: INDIA'S BALANCE OF PAYMENTS (BOP) IS VIABLE BECAUSE

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