Balance of Payment Analysis

What Is BOP ?

The balance of payments accounts are those that record all

transactions between the residents of a country and residents of all
foreign nations.

The BOP is determined by the country's exports and imports of

goods, services, and financial capital, as well as financial transfers.

It reflects all payments and liabilities to foreigners (debits) and all

payments and obligations received from foreigners (credits).

Balance of payments is one of the major indicators of a country's

status in international trade

BOP Consists of
The Current Account
The Capital Account
Official Reserves Account
Errors and Omissions

Current Account
Includes

all imports and exports of goods

and services.
Includes
If

unilateral transfers of foreign aid.

the debits exceed the credits, then a

country is running a trade deficit.

If

the credits exceed the debits, then a

country is running a trade surplus.

Current Account
1.

Export & Import of Merchandise & Services

2.

Income Account
(The income account accounts mostly for investment
income from dividends and interest on credit and
payments on foreign taxes.)

3.

Transfer payment
(Grants received / given, Pvt. Transfer)

Capital Account
1.
2.
3.
4.

Foreign Investment(FDI, FII)

Banking Capital (NRI Deposits)
Short term credit
External Commercial
Borrowings(ECB)

Capital Account
If

foreign ownership of domestic financial

assets has increased more quickly than
domestic ownership of foreign assets in a
given year, then the domestic country
has a capital account surplus.
On the other hand, if domestic ownership
of foreign financial assets has increased
more quickly than foreign ownership of
domestic assets, then the domestic
country has a capital account deficit.

Official International Reserves

The

official international reserve account records

the change in stock of official international
reserve assets (also known as foreign
exchange reserves) at the country's monetary
authority .

Official

reserves assets include gold reserves,

foreign currencies, SDRs, reserve positions in
the IMF.

{Special

Drawing Rights (SDRs) are potential

claims on the freely usable currencies of IMF
members.}
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Net errors and omissions

This

is the last component of the

balance of payments and
principally exists to correct any
possible errors made in
accounting for the three other
accounts.
They are often referred to as
"balancing items".

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Major Highlights of BOP during

April-March 2011-12

During the financial year 2011-12, while growth in

exports decelerated sharply to 23.6 per cent (37.5
per cent in 2010-11), imports grew by 31.1 per cent
as compared with 26.7 per cent in the previous year,
mainly reflecting higher imports of gold & silver.
Imports of oil, which grew by 46.9 per cent, and of
precious metals which grew by 49.4 per cent,
together contributed nearly 45 per cent of total
imports during the year. Especially, international price
of the Indian basket of crude oil increased from US$
85.1 per barrel in 2010-11 to US$ 111.9 per barrel in
2011-12.
Consequently, the trade deficit widened to US$ 189.7
billion in 2011-12 from US$ 130.4 billion in 2010-11.

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During the year, CAD widened to the highest ever

level both in absolute terms and as a proportion of
GDP. The CAD at US$ 78.2 billion was 4.2 per cent of
GDP in 2011-12 as compared with US$ 46.0 billion or
2.7 per cent of GDP during the previous year. The rise
in CAD-GDP ratio was also resulted from slower GDP
growth and its contraction in dollar terms due to
depreciation of rupee.
FDI inflows and NRI deposits, in net terms, were
higher at US$ 22.1 billion and US$ 11.9 billion,
respectively, while portfolio net flows slowed down to
US$ 16.6 billion in 2011-12.

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Major Highlights of BOP during

April-March 2010-11

During the year as a whole i.e. April-March 2010-11,

despite improvement in net invisibles surplus, higher
trade deficit led to increase in absolute size of current
account deficit. However, as a proportion of GDP, CAD
was marginally lower than the preceding year.
In absolute terms, on BoP basis, the trade deficit
widened to US$ 130.5 billion (7.5 per cent of GDP)
during 2010-11 from US$ 118.4 billion (8.6 per cent
of GDP) a year ago.
Net invisibles earnings increased to US$ 86.2 billion
from US$ 80.0 billion last year.
The CAD at US$ 44.3 billion works out to 2.6 per cent
of GDP during 2010-11 as compared to US$ 38.4
billion (2.8 per cent of GDP) a year ago.
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 Net

capital inflows increased to US$ 59.7

billion mainly driven by external assistance,
short-term trade credits, ECBs and banking
capital.
Although net capital inflows were higher,
accretion to foreign exchange reserves
during 2010-11 was marginally lower as a
larger share of increased flows was absorbed
by the widened current account deficit.

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Major Highlights of BOP during

April-March 2009-10

On a BoP basis, the trade deficit decreased marginally

to US$ 117.3 billion (8.9 per cent of GDP) during
2009-10 from US$ 118.7 billion (9.8 per cent of GDP)
a year ago.
The current account deficit was higher at US$ 38.4
billion (2.9 per cent of GDP) during 2009-10, as
compared with US$ 28.7 billion (2.4 per cent of GDP)
during 2008-09, mainly due to lower net invisibles
surplus.
The surplus in the capital account increased sharply
to US$ 53.6 billion (4.1 per cent of GDP) during the
year from US$ 7.3 billion (0.6 per cent of GDP) a year
ago.

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 As

the surplus in the capital account

exceeded the current account deficit, there
was a net accretion to foreign exchange
reserves of US$ 13.4 billion during 2009-10
(as against a drawdown of reserves of US$
20.1 billion during 2008-09).

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Thank
You
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