Balance of payment,macro economics

ALLIANCE UNIVERSITY,MARKETING-C,GROUP11

MICROECONOMICS PRESENTATION (Under the guidance of Prof.Samik Shome)

PRESENTED BY-

GROUP-11-Marketing-C

Abhiney sharma-10SBCM0186 Kanti nath banerjee-10SBCM0148 Harsh tiwari-10SBCM0448 Pratiksha kastwar-10SBCM0162 Aniket kumar-10SBCM0374 Rishu garg-10SBCM0289

BALANCE OF PAYMENT

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Learning objectives-What is Balance of payment?

What is it significance?

Implications ?


WHAT IS BOP?-

A balance of payments (BOP) sheet is an accounting record of all monetary transactions between a country and the rest of the world. These transactions include- payments for the country's exports and imports of goods, services, financial capital,& financial transfers.

The BOP summarizes international transactions for a specific period. prepared in a single currency,


Record of nation’s international transactions.

Keeps a track of incoming and outgoing money.

Shows whether a country is a net borrower or net lender.

It is one of a concern of a nation for its economic growth

SIGNIFICANCE


Current account. Trade account-visible. Services-invisible. Income-invisibles. Unilateral transfers-invisibles. Financial account or Capital account. Statistical discrepancy or accommodating

capital transactions.

Balance of payments accounts-


Current account- It is the sum of the balance of trade (net earnings on

exports – payments for imports) , factor income (earnings on foreign investments – payments made to foreign investors) and cash transfers

entries under Current account might include- Trade – buying and selling of goods and services

◦ Exports – credit entry◦ Imports – debit entry

Trade balance – the sum of Exports and Imports Factor income – repayments and dividends from loans and

investments ◦ Factor earnings – credit entry◦ Factor payments –debit entry

Factor income balance – the sum of earnings and payments.


Capital account- Where trade involving financial assets & International

investments are recorded . It shows the inflows & outflows of capital.

Credit : foreign countries buying financial assets in India such as land and buildings

Debit: India buying financial assets in foreign countries.

Statistical discrepancy or accommodating capital transactions-

Called as omissions and errors. Government cannot accurately measure all transactions that take

place.


Deficit is the amount by which debit exceeds credit

Surplus is the amount when credit exceeds debit

Types of deficit: current account deficit:

Visible deficit or trade deficit: merchandise account Invisible deficit: service account, income account,

unilateral transfers Financial account deficit: Basic deficit : current account deficit + FDI

Trade deficit and surplus


Adjustments of exchange rates: An upwards shift in the value of a nation's currency

relative to others will make a nation's exports less competitive and make imports cheaper and so will tend to correct a current account surplus. It also tends to make investment flows into the capital account less attractive so will help with a surplus there too. Conversely a downward shift in the value of a nation's currency makes it more expensive for its citizens to buy imports and increases the competitiveness of their exports, thus correcting a deficit.

BALANCING MACHANISM-


Nations can agree to fix their exchange rates against each other, and then correct any imbalances that arise by rules based and negotiated exchange rate changes and other methods

Rules based rebalancing mechanisms

Account Net balance

Merchandise -$214710

Services $38,175

Income $30,835

Unilateral transfers -$28,390

CURRENT ACCOUNT -$174,091

FINANCIAL ACCOUNT $116,187

Statistical discrepancy -$39,487

Simplified U.S balance of payments,2008

ALLIANCE UNIVERSITY,MARKETING-

C,GROUP11


IMPACT IN INDIAN ECONOMY-

India facing BOP disequilibrium since Indipendence,culminating a disaster in 1990-91.

It was always under pressure & had a huge deficit due high import of food grains & goods, heavy external borrowing, payments & poor export.

Govt implied Protectionist policies(1956-61) to boost domestic Industrialization as an import substitution, thus enhancing the export.

But high degree of protection in Indian industries led to inefficiency & poor product to compete with the world market as well as in Indian market too.

Lack of competition & higher production cost also led to poor export. To curb the BOP imbalance out of panicky,Govt resorted large scale foreign borrowings for its developmental efforts which backfire Indian economy as debt service obligations rose sharply.


An economic recovery from 1968–69, however, eased the problem, and by September 1970, foreign exchange reserves amounted to $616 million, as compared with $383 million by December 1965. Reserves declined to $566 million by the end of 1972 but increased to $841 million as of 1975.

Indian export was dependent on world trade situations, as we were basically primary product exporters, the earnings was low & unstable, the quality was low too.

The instability of the exchange value was also a problem for Indian export,govt had strongly an inward looking policy.

The process of liberation started form mid 80s,restriction on certain Imports were removed, but the situation was already out of hand which led to 1990-91 crisis. Today although we have BOP imbalances its devolved and more productive than last decade.



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Balance of payment,macro economics