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GROUP 4
Ekta Suri (17/11)Anirban Chakraborty (18/11)
Vishal Mohla(19/11)
Sumit Gupta (20/11)
Swati Karki (21/11)
India: Balance of payments, Balance oftrade, Current account deficit, Capitalaccount transfers, important issues, etc.
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The Balance Of Payments of a country is a systematicrecord of all economic transactions between theresidents of a country and the rest of the world. Itpresents a classified record of all receipts on account ofgoods exported, services rendered and capital receivedby residents and payments made by them on accountof goods imported and services received from thecapital transferred to non-residents or foreigners.
Reserve Bank of India (RBI)
BALANCE OF PAYMENTS
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Balance of Payments is the
summary of all the transactions
between the residents of one
country and rest of the world for
a given period of time, usually
one year.
BALANCE OF PAYMENTS
India's balance of payment worsened in the early 1990's but nowthe situation is under control. In fact, India has a good foreign
exchange reserves mainly due to capital inflows from foreign
financial institutions or the stock exchange.
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The BoP is an important indicator of pressure on acountrys foreign exchange rate
The BOP helps to forecast a countrys market
potential, especially in the short run
Changes in a countrys BOP may signal the impositionor removal of controls over payment of dividends and
interest, license fees, royalty fees, or other cashdisbursements to foreign firms or investors
IMPORTANCE OF BoP
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Current account
Capital account
Financial account
Net errors and omissions account
Reserves and related items: official reserve
account
CONTENTS OF BoP
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Balance of Payments from 2005-06 through 2009-10, 2010-11
estimates, and April-September 2010 Semi annual Results
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MAJOR ITEMS OF INDIAs BoP
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Current account
Net export/import of goods (trade balance)
Net export/import of services
Net income (investment income from directand portfolio investment plus employee
compensation)
Net transfers (sums sent home by migrantsand permanent workers aboard, gifts, grants
and pensions)
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Capital account
Capital transfers related to the purchase
and sale of fixed assets such as real
estate
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Financial account
Net foreign direct investment
Net portfolio investment
Other financial items
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Net errors and omissions
account
Missing data such as illegaltransfers
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Reserves and related items: official
reserve account
Changes in official monetary reserves including
gold, foreign exchange, and IMF position.
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If Americans buy automobiles from Japan, and have no other
transactions with Japan, the Japanese must end up holding
dollars, which they may hold in the form of bank deposits in
the United States or in some other U.S. investments
U.S.A Japan
EXAMPLE
AUTOMOBILES
dollars or dollar-denominated assets
E.g.. Treasury bills
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The payments of Americans to Japan forautomobiles are balanced by the payments ofJapanese to U.S. individuals and institutions,including banks, for the acquisition of dollar
assets
Japan sold the United States automobiles, and
the United States sold Japan dollars or dollar-denominated assets such as Treasury bills
EXAMPLE (Contd.)
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Although the totals of payments and receipts arenecessarily equal, there will be inequalitiesexcesses ofpayments or receipts, called deficits or surplusesinparticular kinds of transactions.
There can be a deficit or surplus in any of the following:
merchandise trade (goods),
services trade,
foreign investment income,
unilateral transfers (foreign aid),
private investment,
the flow of gold and money between central banks andtreasuries,
or any combination of these or other international transactions.
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Goods and services produced by the foreign sector andpurchased by the domestic economy.
Imports are goods purchased from other countries.
For e.g. The United States, buys a lot of the stuff produced
within the boundaries of other countries, including bananas,
coffee, cars, chocolate, computers, and, well, a lot of other
products.
Imports and exports are frequently combined into a single
term, net exports (exports minus imports)
IMPORTS
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The sale of goods to a foreign country.
For E.g.. The United States, sells a lot of the stuff produced
within our boundaries to other countries, including wheat,
beef, cars, furniture, and, well, almost every variety of productyou care to name.
In general, domestic producers (and their workers) are elated
with the prospect of selling their goods to foreign countries--leading to more buyers, a higher price, and more profit. The
higher price, however, is bad for domestic consumers.
EXPORTS
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BALANCE
OF
TRADE
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BALANCE OF TRADE
Buying and selling goods and services from
other countries
The purchase of goods and services from abroadthat leads to an outflow of currency from the
home countryImports (M)
The sale of goods and services to buyers from
other countries leading to an inflow of currency
to the home countryExports (X)
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The difference between the value of goods and servicesexported out of a country and the value of goods and services
imported into the country.
The balance of trade is the official term for net exports that
makes up the balance of payments.
The balance of trade can be a "favourable" surplus (exports
exceed imports) or an "unfavourable" deficit (imports exceed
exports).
The official balance of trade is separated into the balance of
merchandise trade for tangible goods and the balance of
services....
BALANCE OF TRADE
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A balance of trade surplus is most favourable to domesticproducers responsible for the exports.
However, this is also likely to be unfavourable to domestic
consumers of the exports who pay higher prices.
Alternatively, a balance of trade deficit is most unfavourable
to domestic producers in competition with the imports, but it
can also be favourable to domestic consumers of the exportswho pay lower prices.
BALANCE OF TRADE
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The Flow of Currencies
Whisky sold to Italian hotel
changed to
Export earnings for UK(Credit on Balanceof Payments)
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India reported a trade deficit equivalent to 13601 Million USD
in November of 2011.
India is leading exporter of gems and jewellery, textiles,
engineering goods, chemicals, leather manufactures and
services.
India is poor in oil resources and is currently heavily
dependent on coal and foreign oil imports for its energy
needs.
Other imported products are: machinery, gems, fertilizers and
chemicals. Main trading partners are European Union, The
United States, China and UAE .
INDIA: BALANCE OF TRADE
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Current Account:
Current Account is the sum of the balance of trade (exports minusimports of goods and services), net factor income (such as interest and
dividends) and net transfer payments (such as foreign aid).
Current Account Deficit:
Occurs when a country's total imports of goods, services and transfersis greater than the country's total export of goods, services andtransfers. This situation makes a country a net debtor to the rest of theworld.
A substantial current account deficit is not necessarily a bad thingfor certain countries. Developing counties may run a currentaccount deficit in the short term to increase local productivity and
exports in the future.Read more:
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India Current Account
India reported a current account deficit equivalent to 16.9Billion USD in the third quarter of 2011.
It is leading exporter of gems and jewellery, textiles,engineering goods, chemicals, leather manufactures and
services. India is poor in oil resources and is currentlyheavily dependent on coal and foreign oil imports for itsenergy needs.
Other imported products are: machinery, gems, fertilizers
and chemicals.
Main trading partners are European Union, The UnitedStates, China and UAE .
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Indias Current Account Deficit
Rose to 3.7% of gross domestic product (GDP) forthe first half of the year ending 31 March
last time India had a current-account deficit of
over 3% was during the crisis of 1991, when thegovernment was close to defaulting on itsexternal debt
Exports have been growing at a faster pace than
imports in recent months on the back of a pickupin global recovery
India imports almost 75% of the oil it uses
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Capital Account:The net result of public and private international investments flowing in and
out of a country.
The net results includes foreign direct investment, plus changes in holdingsof stocks, bonds, loans, bank accounts, and currencies.
Capital Account = Foreign direct investment+
Portfolio investment + Other investmentReserve account
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Consolidated Fiscal Deficit Ratio, Debt Ratio,
and Interest Payments as % of GDP
CURRENT TRENDS
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Indias balance of payments during the secondquarter of the current financial year sprang asurprise of sorts with the current account deficitcontained to what it was during the same quarterof 2010-11 $16.9 billion.
This was despite a ballooning of the trade gap to
$43.9 billion from $37 billion as both services andsecondary income stayed buoyant withconsiderable accretion in net terms.
CURRENT TRENDS
CURRENT TRENDS
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These facts emerge from a scrutiny of the external sector data
released by the Reserve Bank of India under the revisedformat as per the IMFs Balance of Payments (BoP) Manual 6,
where details are furnished in four distinct categories in the
current account while the traditional capital account is broken
into two heads capital account that comprise mainly official
transfers and financial account.
Based on this new presentation, though exports growth was
impressive at 47.2%during this quarter, the pace of imports,
at 35.4%, was higher than the 21.9%recorded during the same
period of the previous year, leading to a deterioration in the
merchandise trade. Net income from services rose by 9.3%
and secondary income, comprising mainly transfers, was up
by over $16 billion.
CURRENT TRENDS
CURRENT TRENDS
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In the financial account, the tempo had slackened during the
July-September 2011 period to $17.9 billion from the year-agolevel of $18.3 billion. This was a sequel to an outflow under
portfolio investment ($1.4 billion) as against an inflow of
$18.7 billion in the same period of the preceding year.
What was notable during this quarter is the negligible
accretion to the foreign exchange reserves a mere $0.3
billion as compared to $3.2 billion a year ago.
CURRENT TRENDS
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Consolidated deficit ratio
Consolidating debt is when you take out a single, newloan to pay off several existing debts. This can be agood way of taking control of your finances but youneed to be careful.
Impact of consolidation
General government debt has to be consolidatedaccording to the Maastricht definition. This means thatgeneral government debt does not include the debt
issued by one government sub-sector and held byanother. The result of any intra-governmental debtelimination is a lower general government debt.
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