Balance of Payments

Balance of Payments: India

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Balance of payments provides a record of all the international trade and the financial transactions of the residents of a country and the residents of other countries during a certain period. Therefore, it is a record of all economic transactions between a certain country and the rest of the world during a specific period. A country can either have a balance of payment surplus or a balance of payment deficit. A balance of payment deficit implies that a country is imports more than it exports. On the other hand, a balance of payment surplus implies that a country exports more than it imports (Pugel, 2016). India has one of the fastest growing economies. During the December quarter of the financial year 2017-18, India had a balance of payment surplus of $43,574 million. However, during the year 2018-19, India had a balance of payment deficit of $3,339 million (Reserve Bank of India, 2019).

An increase in the current account deficit is the major factor that led to the balance of payment deficit during the fiscal year 2018-19. Political uncertainty since this was an election year was one of the major factors that led to the deficit. Foreign capital outflows also contributed to the balance of payment deficit. During the financial year, there was volatility in the price of the oil, which had a negative impact on the balance of payment (Choudhury, 2019).

The balance of payment deficit threatens to weaken the rupee by increasing the demand for the dollar. This would have a negative impact on the economy as it would lead to an increase in the inflation rates in the country. India can tackle the balance of payment deficit by increasing its exports. India is renowned for the export of services. The government of India should also encourage capital inflows into the country through various programs such as Make in India.

References

Choudhury, S. (2019, March 29). India Oct-Dec current a/c gap, balance of payments weaken on-year. Reuters. Retrieved from: https://www.reuters.com/article/india-currentaccount/india-oct-dec-current-a-c-gap-balance-of-payments-weaken-on-year-idUSL3N20Y2OE

Pugel, T. A. (2016). Interntional Economics, 16th Edition. New York, NY: McGraw-Hill Education.

Reserve Bank of India. (2019). Annual Report 2018-19. Retrieved from: https://rbidocs.rbi.org.in/rdocs/AnnualReport/PDFs/0ANNUALREPORT2018193CB8CB2D3DEE4EFA8D6F0F6BD624CEDE.PDF