Export Import DifferencePayment and Receipts What is balance of payments? ………………..random answers
Remember…….. BoP is……. An Account (Double entry account) Economy RoW which records all the transactions of an Economy with RoW
Important Points It is a double entry account So it is always balanced Because all double entry accounts are always balanced Records all the transactions Not Limited to export import Includes loans, investments, gifts, equity issues, etc.
THEN WHAT IS SURPLUS AND WHAT IS DEFICIT? If it is always balanced…………
BoP has 3 sub accounts ….. Current Account Account Related to Income statement transactions Export Import Interest Dividends Gifts Capital Account Account Related to Balance Sheet transactions Equity investments Loans Asset acquisitions ADRs, GDRs And the third is reserves account…..
BoP Format (as per RBI manual) (A) Current Account (i) Merchandise (ii) (iii) Invisibles (a) Travel (b) Transportation (c) Insurance (d) Miscellaneous (e) Government not classified elsewhere (f) Investment Income (g) Transfer Payments (Passenger Tourists, Air Tickets) Cargo Shipping Insurance Services All other services, BPO, KPO,etc Interest, Dividend and Profits Gifts and Remittances Consulates & Embassies Non Monetary Gold
BoP format (continued…) (B) Capital Account (a) Government (b) Private (c) Banking (C) IMF (D) SDR (E) B + C + D (F) A + E (G) Errors & Omissions (H) Forex Reserves and Monetary Gold FDI …and ….. FII / FPI
IMF Objective Global Liquidity (Prevent Insolvency of any Government) Hence if BoP is in continuous deficit; then IMF would intervene and help IMF is a corpus based institution Member countries contribute to IMF Eligible countries can borrow from IMF Quota contributions (Quota Purchases) by member countries to IMF is in IMF account Loans (Drawings) by member countries is through SDR account (SDR Allocation)
BoP format (continued…) (B) Capital Account (a) Government (b) Private (c) Banking (C) IMF (D) SDR (E) B + C + D (F) A + E (G) Errors & Omissions (H) Forex Reserves and Monetary Gold FDI …and ….. FII / FPI Quota Contributions Loans from IMF (SDR Allocation) Forex Cash & Assets with RBI Gold with RBI
Balance of Trade This is balance on Merchandise Account Exports – Imports Indicates export potential of a country Indicates import needs Detailed analysis enables policy makes to budget accordingly
Errors & Omissions in BoP BoP is prepared by collecting and collating data; by RBI If all data is correct; – Debits = Credits Statistical Data Collection Errors Errors & Omissions is difference between – Change in Current and Capital Account – Actual Change in Reserves