Balance of Payments

Balance of Payments (BOP) is considered the most comprehensive exponent for measuring a nation’s international trade and capital flows in a given period. It represents net inflows or outflows on the account of all exports & imports, fund transfers, and capital acquisitions. The balance of payments on the current account in India was negative until the 1990s, indicating an excess of imports over exports.

Ever since the New Industrial Policy was promulgated in 1991, Indian exports have been on an upswing. The growth in the services industry and FDI (foreign direct investment) has given a further fillip to the quantum of exports. However, rising oil imports (USD 61.72 billion, in FY 2008) have put a pressure on the balance of trade. Higher crude bills explain the 58.5% rise in trade deficit during April-December 2008 over April-December 2007.

With the economic recovery setting its pace and India emerging as a preferred investment destination, the balance of payments is likely to improve in the current fiscal year. An April 2009 report by Goldman Sachs estimated the basic balance of payments (current account balance, portfolio investments, and FDIs) to become positive in FY 2008-09, mainly on the back of higher FDIs. In addition, the services industry has supported the Indian economy amidst the worst recession in the recent times. It is likely to be the key driver for a favorable balance of trade. Despite the strong recessionary undercurrents, the IT & ITES industry registered a growth of 14.4% in 2008!