<<–2/”>a >a href=”https://exam.pscnotes.com/balance-of-payments/”>Balance of Payments is a systematic record of all economic transactions undertaken by residents of one country i.e. households, firms and the government with their counterparts in rest of the world. It consists of:
1. Current Account,
2. Capital Account and
3. Reserve Account.
The Current Account covers transactions in goods and Services and transfers during the current period. Current Account = Value of Exports- Value of Imports + Net Transfers from Abroad = Net Exports + Net Transfers from Abroad
The current account records exports and imports in goods and services and Transfer Payments. When exports exceed imports, there is a trade surplus and when imports exceed exports there is a Trade Deficit.
Directorate General of Foreign Trade (DGFT) organisation is an attached office of the Ministry of Commerce and Industry and is headed by Director General of Foreign Trade. Right from its inception till 1991, when Liberalization-2/”>Liberalization in the economic policies of the Government took place, this organization has been essentially involved in the regulation and promotion of foreign trade through regulation. Keeping in line with liberalization and Globalization/”>Globalization-3/”>Globalization and the overall objective of increasing of exports, DGFT has since been assigned the role of “facilitator”. The shift was from Prohibition and control of imports/exports to promotion and facilitation of exports/imports, keeping in view the interests of the country.
Foreign Trade Policy of India has always focused on substantially increasing the country’s share of global merchandise trade. Accordingly the Government of India has been taking various steps towards boosting its trade with the rest of the world by adopting policies and procedures which would help to increase and facilitate both exports and imports with the other countries of the world.
India’s exports declined by 1.3 per cent and 15.5 per cent in 2014-15 and 2015-16 respectively. The trend of negative Growth was reversed somewhat during 2016-17 (April-December), with exports registering a growth of 0.7 per cent to US$ 198.8 billion from US$ 197.3 billion in 2015-16 (April-December). During 2016-17 (AprilDecember) Petroleum, oil and lubricants (POL) exports constituting 11.1 per cent of total exports.
India’s exports to Europe, Africa, America, Asia and CIS and Baltics declined in 2015-16. However, India’s exports to Europe, America and Asia increased by 2.6 per cent, 2.4 per cent and 1.1 per cent respectively in 2016-17 , while exports to Africa declined by 13.5 per cent. USA followed by UAE and Hong Kong were the top export destinations.
Value of imports declined from US$ 448 billion in 2014-15 to US$ 381 billion in 2015-16, mainly on account of decline in crude oil prices.Top three import destinations of India were China followed by UAE and USA in 2016-17.
India’s trade deficit declined by 13.8 per cent (vis-à-vis 2014- 15) to US$ 118.7 billion. Furthermore, it declined by 23.5 per cent to US$ 76.5 billion in 2016-17 (April-December) as compared to US$ 100.1 billion in the corresponding period of previous year.,
India is a major player in the global economy, with a rapidly growing economy and a large Population. India’s trade is also growing rapidly, and the country is now one of the world’s largest exporters.
The composition of India’s trade has changed significantly in recent years. In the past, India’s exports were dominated by primary commodities, such as textiles and agricultural products. However, in recent years, India has become a major exporter of manufactured goods, such as automobiles and electronics. India’s imports are also more diversified than they used to be, with imports of Capital Goods and Intermediate Goods playing a larger role.
The direction of India’s trade has also changed in recent years. In the past, India’s major trading partners were the United States and the European Union. However, in recent years, India has become more integrated into the global economy, and its trade with other Asian countries has grown rapidly. China is now India’s largest trading partner, followed by the United States and the United Arab Emirates.
India’s balance of payments is the record of all economic transactions between India and the rest of the world. The balance of payments is divided into two main accounts: the current account and the capital account. The current account records all trade in goods and services, as well as income from investments and transfers. The capital account records all flows of capital, such as Investment/”>Foreign Direct Investment and portfolio investment.
India’s balance of payments has been in surplus in recent years. This means that India has been earning more from its exports than it has been spending on its imports. The surplus in the current account has been driven by India’s strong export performance. The surplus in the capital account has been driven by foreign investment in India.
India’s balance of payments surplus is a positive development. It means that India is a net creditor country, and that it has a strong external position. However, the surplus could also lead to problems, such as an appreciation of the Indian rupee.
A balance of payments deficit occurs when a country spends more on imports than it earns from exports. This can lead to a number of problems, such as a decline in the value of the country’s currency and a shortage of Foreign Exchange.
There are a number of ways to adjust a balance of payments deficit. One way is to devalue the currency. This makes exports cheaper for foreign buyers and imports more expensive for domestic buyers. Another way to adjust a balance of payments deficit is to reduce imports. This can be done by imposing tariffs or quotas on imports.
India’s balance of payments is a complex issue. There are a number of factors that can affect the balance of payments, and there is no single solution to a balance of payments problem. The Indian government will need to carefully manage the balance of payments in order to ensure that the country’s economy remains strong.
Composition and direction of India’s trade
India’s trade is composed of both goods and services. In 2020, goods exports accounted for 69% of total exports, while services exports accounted for 31%. The top five goods exports from India are petroleum products, gems and jewelry, engineering goods, pharmaceuticals, and iron Ore. The top five services exports from India are business services, travel, Software services, transport, and Communication services.
India’s trade is directed towards both developed and developing countries. In 2020, the top five destinations for Indian exports were the United States, China, the United Arab Emirates, Hong Kong, and Singapore. The top five sources of Indian imports were China, the United States, Saudi Arabia, Iraq, and the United Arab Emirates.
Balance of Payment problem
A balance of payment problem is a situation in which a country’s imports exceed its exports. This can lead to a number of problems, such as a decline in the value of the country’s currency, Inflation, and a decrease in economic growth.
There are a number of reasons why a country might experience a balance of payment problem. One reason is that the country’s exports may be too expensive, or that its imports may be too cheap. Another reason is that the country may be experiencing a Recession, which can lead to a decline in exports and an increase in imports.
There are a number of things that a country can do to address a balance of payment problem. One thing that the country can do is to devalue its currency, which will make its exports more competitive and its imports more expensive. Another thing that the country can do is to reduce its imports, which can be done by imposing tariffs or quotas on imports. The country can also try to increase its exports, which can be done by providing subsidies to exporters or by negotiating trade agreements with other countries.
Frequently asked questions
- What is the composition of India’s trade?
India’s trade is composed of both goods and services. In 2020, goods exports accounted for 69% of total exports, while services exports accounted for 31%. The top five goods exports from India are petroleum products, gems and jewelry, engineering goods, pharmaceuticals, and iron ore. The top five services exports from India are business services, travel, software services, transport, and communication services.
- What is the direction of India’s trade?
India’s trade is directed towards both developed and developing countries. In 2020, the top five destinations for Indian exports were the United States, China, the United Arab Emirates, Hong Kong, and Singapore. The top five sources of Indian imports were China, the United States, Saudi Arabia, Iraq, and the United Arab Emirates.
- What is a balance of payment problem?
A balance of payment problem is a situation in which a country’s imports exceed its exports. This can lead to a number of problems, such as a decline in the value of the country’s currency, inflation, and a decrease in economic growth.
- What are the reasons for a balance of payment problem?
There are a number of reasons why a country might experience a balance of payment problem. One reason is that the country’s exports may be too expensive, or that its imports may be too cheap. Another reason is that the country may be experiencing a recession, which can lead to a decline in exports and an increase in imports.
- What can a country do to address a balance of payment problem?
There are a number of things that a country can do to address a balance of payment problem. One thing that the country can do is to devalue its currency, which will make its exports more competitive and its imports more expensive. Another thing that the country can do is to reduce its imports, which can be done by imposing tariffs or quotas on imports. The country can also try to increase its exports, which can be done by providing subsidies to exporters or by negotiating trade agreements with other countries.
India’s exports are mainly composed of:
(A) Agricultural products
(B) Manufactured goods
(C) Services
(D) All of the aboveIndia’s imports are mainly composed of:
(A) Capital goods
(B) Intermediate goods
(C) Consumer goods
(D) All of the aboveIndia’s major trading partners are:
(A) The United States
(B) China
(C) The European Union
(D) All of the aboveIndia’s balance of payments is:
(A) In surplus
(B) In deficit
(C) In equilibrium
(D) Cannot be determined from the information givenIndia’s Balance of Trade is:
(A) In surplus
(B) In deficit
(C) In equilibrium
(D) Cannot be determined from the information givenIndia’s current account balance is:
(A) In surplus
(B) In deficit
(C) In equilibrium
(D) Cannot be determined from the information givenIndia’s capital account balance is:
(A) In surplus
(B) In deficit
(C) In equilibrium
(D) Cannot be determined from the information givenIndia’s financial account balance is:
(A) In surplus
(B) In deficit
(C) In equilibrium
(D) Cannot be determined from the information givenIndia’s official reserves are:
(A) Increasing
(B) Decreasing
(C) Constant
(D) Cannot be determined from the information givenIndia’s foreign exchange reserves are:
(A) Increasing
(B) Decreasing
(C) Constant
(D) Cannot be determined from the information given