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Balanceofpayment 091012114602-phpapp01

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vijay jha
vijay jha

The document discusses India's balance of payments (BOP) position in 2008-2009. It summarizes that India had a large current account deficit due to higher oil imports and a decline in exports. Net capital inflows also reduced sharply. While FDI inflows remained strong, other flows like external commercial borrowings declined. India's foreign exchange reserves fell significantly. The trade deficit for the first nine months of 2008-2009 was much higher than the previous year. Inward remittances provided some support. The document examines factors impacting India's BOP and measures to make it more favorable.

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BALANCE OF PAYMENT OF INDIA Presented by- Vijay Jha
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 Ommisions
CURRENT ACCOUNT Includes all imports and exports of goods and services. Includes unilateral transfers of foreign aid. If 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 Export & Import of Merchandise & Services Income Account (The income account accounts mostly for investment income from dividends and interest on credit and payments on foreign taxes.) Transfer payment (Grants received / given, Pvt.Transfer)
CAPITAL ACCOUNT 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.}  
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".
INDIA’S INTERNATIONAL TRADE
INDIA’S MAJOR TRADING PARTNERS
INDIA’S TRADE BASKET
APRIL – JUNE QUARTER 2008-09 (IN US $ BILLION ) (US $ BILLION) Items April-June 08 April-June 07 Jul-Sept 08 Jul-Sept 07 I. Current Account -10.7 -6.3 -12.5 -4.3 II. Capital Account (net) (a to f) 12.9 17.5 7.8 33.5 a.Foreign Investment (i+ii) 5.9 10.1 4.3 13 (i) Foreign Direct Investment 10.1 2.6 5.6 2.1 (ii) Portfolio Investment -4.2 7.5 -1.3 10.9 b.Banking Capital 2.7 -0.9 2.1 6.6 of which: NRI Deposits 0.8 -0.4 0.3 0.4 c.Short-Term Credit 2.2 1.8 NA NA d.External Assistance 0.3 0.2 NA NA e.External Commercial Borrowings 1.6 7.0 1.3 10.9 f.Other items in capital account* 0.2 -0.7 NA NA III. Valuation change 0.2 3.0 NA NA Total (I+II+III) 2.4 14.2 -4.7 29.2
INDIA’S BOP POSITION DURING THE 1 ST HALF OF 2008-09 (APRIL-SEPT) Widening of Tr. Deficit resulting in large CAD, and moderation in capital flows. Merchandise trade deficit recorded a sharp increase during April-November 2008 on account of higher crude oil prices for most of the period and loss of momentum in exports since September 2008. Net surplus under invisibles remained buoyant, (led by increase in software exports and private transfers.) Net capital inflows reduced sharply and have remained volatile during 2008-09 so far.
…… CONTD While the net inward FDI remained buoyant net outward FDI also remained high during April-September 2008. So the gross capital inflows were higher on account of higher FDI inflows and NRI deposits during the period. The revised short-term debt maturing up to March 2009, was estimated at around US $ 85 billion as at end-March 2008.
… .CONTD India’s merchandise exports during April-Nov 2008 increased by 18.7 % while imports recorded a higher growth of 32.5 %, largely due to the rise in (POL) imports. The rise in oil imports was primarily due to the elevated international crude oil prices, while the volume of oil imports moderated.
EXPORTS Decline in exports 1.1% drop to $ 12.7 billon in Dec 08 12.1% drop in Oct 08 9.9% drop in Nov 08 22% drop in Jan 09 Decline of exports in following sectors: (Dec 08) Handicraft & Handlooms 64% Textile 13% Gems & Jewellery 21% Chemicals 21%
EXPORTS Increase in exports Eng. Goods, Phama & Agri. Products (in the range of 19-25%) India’s estimated exports $ 170 billion FY 08-09 $ 160 billion FY 07-08 Govt set target $ 200 billion
IMPORTS Imports grew by 8.8% to $ 20.25 b in Dec 08 Non oil imports 30.9% to $15.54 b (consisting of Capital Equipment & Proj. Goods) This suggests a robust domestic activity.
TRADE DEFICIT $ 7.57 Billion in Dec 08 $ 10.07 Billion in Nov 08 Tr. Deficit for 1 st 9 months is $ 93.8 billion (74% higher than S 58.98 b in the year ago period ) Lower Oil Imports over Jan- Mar will enable to end this fiscal with a Tr. Deficit of about 40% higher than last year’s.
INWARD REMITTANCES Indicated to touch $ 40 billion in year 2008 (World Bank projection was $ 30 billion ) In 2007, No. 1 was India (27 billion) No.2 was China (25.7 billion) Unlike FIIs flows, inward remittances are considered to be extremely sticky Mostly from Blue collar workers(not more than $ 500 per month)
FOREX RESERVES Import cover of India’s foreign exchange reserves declined to 11.2 months as at end-September ‘08 as against 14.4 months as at end-March ‘08 in sync with the fall in reserves, the RBI said in its half-yearly report on forex reserves. As of January 16, 2009, foreign exchange reserves at US $ 252.2 billion declined by US $ 57.5 billion over the level at end-March 2008
ECB & FCCB Even after Indian govt. relaxed overseas borrowing norms for corporates, loans have failed to pick up.(as foreign banks curb lending) During Oct- Dec 2008, inflows through ECB & FCCB were only $ 4.5 b against $ 8.1 b in Oct –Dec 2007 Borrowings through ECB & FCCBs dipped 32% in 2008. Indian companies borrowed $ 22.7 b during the year as compared to $33.1 b in 2007
THE GLOBAL SCENE Commodity & oil prices have come down Subprime crisis
IS INDIA HEADING TOWARDS BOP CRISIS OR NOT ? What is BoP crisis Sufficient Forex Reserves Volatility of FII
FACTORS IMPACTING BOP Trade Agreement Trade Policy Currency Exchange Rate Tax , Tariff and Trade Barriers
IMPACT OF STIMULUS PACKAGE Trade Interest Interest subversion Exemption of Tax
MEASURES FOR MAKING BOP FAVOURABLE Diversification of Trade Development of New Industries Concentrate on selected sectors Concentrating on Frugal engineering skills Incentives related to Trade
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Balanceofpayment 091012114602-phpapp01

  • 1. BALANCE OF PAYMENT OF INDIA Presented by- Vijay Jha
  • 2. 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
  • 3. BOP CONSISTS OF The Current Account The Capital Account Official Reserves Account Errors and Ommisions
  • 4. CURRENT ACCOUNT Includes all imports and exports of goods and services. Includes unilateral transfers of foreign aid. If 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 .
  • 5. CURRENT ACCOUNT Export & Import of Merchandise & Services Income Account (The income account accounts mostly for investment income from dividends and interest on credit and payments on foreign taxes.) Transfer payment (Grants received / given, Pvt.Transfer)
  • 6. CAPITAL ACCOUNT Foreign Investment(FDI, FII) Banking Capital (NRI Deposits) Short term credit External Commercial Borrowings(ECB)
  • 7. 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 .
  • 8. 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.}  
  • 9. 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".
  • 13. APRIL – JUNE QUARTER 2008-09 (IN US $ BILLION ) (US $ BILLION) Items April-June 08 April-June 07 Jul-Sept 08 Jul-Sept 07 I. Current Account -10.7 -6.3 -12.5 -4.3 II. Capital Account (net) (a to f) 12.9 17.5 7.8 33.5 a.Foreign Investment (i+ii) 5.9 10.1 4.3 13 (i) Foreign Direct Investment 10.1 2.6 5.6 2.1 (ii) Portfolio Investment -4.2 7.5 -1.3 10.9 b.Banking Capital 2.7 -0.9 2.1 6.6 of which: NRI Deposits 0.8 -0.4 0.3 0.4 c.Short-Term Credit 2.2 1.8 NA NA d.External Assistance 0.3 0.2 NA NA e.External Commercial Borrowings 1.6 7.0 1.3 10.9 f.Other items in capital account* 0.2 -0.7 NA NA III. Valuation change 0.2 3.0 NA NA Total (I+II+III) 2.4 14.2 -4.7 29.2
  • 14. INDIA’S BOP POSITION DURING THE 1 ST HALF OF 2008-09 (APRIL-SEPT) Widening of Tr. Deficit resulting in large CAD, and moderation in capital flows. Merchandise trade deficit recorded a sharp increase during April-November 2008 on account of higher crude oil prices for most of the period and loss of momentum in exports since September 2008. Net surplus under invisibles remained buoyant, (led by increase in software exports and private transfers.) Net capital inflows reduced sharply and have remained volatile during 2008-09 so far.
  • 15. …… CONTD While the net inward FDI remained buoyant net outward FDI also remained high during April-September 2008. So the gross capital inflows were higher on account of higher FDI inflows and NRI deposits during the period. The revised short-term debt maturing up to March 2009, was estimated at around US $ 85 billion as at end-March 2008.
  • 16. … .CONTD India’s merchandise exports during April-Nov 2008 increased by 18.7 % while imports recorded a higher growth of 32.5 %, largely due to the rise in (POL) imports. The rise in oil imports was primarily due to the elevated international crude oil prices, while the volume of oil imports moderated.
  • 17. EXPORTS Decline in exports 1.1% drop to $ 12.7 billon in Dec 08 12.1% drop in Oct 08 9.9% drop in Nov 08 22% drop in Jan 09 Decline of exports in following sectors: (Dec 08) Handicraft & Handlooms 64% Textile 13% Gems & Jewellery 21% Chemicals 21%
  • 18. EXPORTS Increase in exports Eng. Goods, Phama & Agri. Products (in the range of 19-25%) India’s estimated exports $ 170 billion FY 08-09 $ 160 billion FY 07-08 Govt set target $ 200 billion
  • 19. IMPORTS Imports grew by 8.8% to $ 20.25 b in Dec 08 Non oil imports 30.9% to $15.54 b (consisting of Capital Equipment & Proj. Goods) This suggests a robust domestic activity.
  • 20. TRADE DEFICIT $ 7.57 Billion in Dec 08 $ 10.07 Billion in Nov 08 Tr. Deficit for 1 st 9 months is $ 93.8 billion (74% higher than S 58.98 b in the year ago period ) Lower Oil Imports over Jan- Mar will enable to end this fiscal with a Tr. Deficit of about 40% higher than last year’s.
  • 21. INWARD REMITTANCES Indicated to touch $ 40 billion in year 2008 (World Bank projection was $ 30 billion ) In 2007, No. 1 was India (27 billion) No.2 was China (25.7 billion) Unlike FIIs flows, inward remittances are considered to be extremely sticky Mostly from Blue collar workers(not more than $ 500 per month)
  • 22. FOREX RESERVES Import cover of India’s foreign exchange reserves declined to 11.2 months as at end-September ‘08 as against 14.4 months as at end-March ‘08 in sync with the fall in reserves, the RBI said in its half-yearly report on forex reserves. As of January 16, 2009, foreign exchange reserves at US $ 252.2 billion declined by US $ 57.5 billion over the level at end-March 2008
  • 23. ECB & FCCB Even after Indian govt. relaxed overseas borrowing norms for corporates, loans have failed to pick up.(as foreign banks curb lending) During Oct- Dec 2008, inflows through ECB & FCCB were only $ 4.5 b against $ 8.1 b in Oct –Dec 2007 Borrowings through ECB & FCCBs dipped 32% in 2008. Indian companies borrowed $ 22.7 b during the year as compared to $33.1 b in 2007
  • 24. THE GLOBAL SCENE Commodity & oil prices have come down Subprime crisis
  • 25. IS INDIA HEADING TOWARDS BOP CRISIS OR NOT ? What is BoP crisis Sufficient Forex Reserves Volatility of FII
  • 26. FACTORS IMPACTING BOP Trade Agreement Trade Policy Currency Exchange Rate Tax , Tariff and Trade Barriers
  • 27. IMPACT OF STIMULUS PACKAGE Trade Interest Interest subversion Exemption of Tax
  • 28. MEASURES FOR MAKING BOP FAVOURABLE Diversification of Trade Development of New Industries Concentrate on selected sectors Concentrating on Frugal engineering skills Incentives related to Trade