Page 378 - DECO503_INTERNATIONAL_TRADE_AND_FINANCE_ENGLISH

International Trade and Finance Pavitar Parkash Singh, Lovely Professional University

Notes
Unit 32 : India’s Balance of Payment

CONTENTS
Objectives
Introduction
32.1 India’s Balance of Payments on Current Account
32.2 Balance of Payment Crisis
32.3 Balance of Payment Since the New Economic Reforms of 1991
32.4 Summary
32.5 Key-Words
32.6 Review Questions
32.7 Further Readings
Objectives

After reading this Unit students will be able to:
• Discuss India’s Balance of Payments on Current Account.
• Explain the Balance of Payments Crisis.
• Know the Balance of Payments Since the New Economic Reforms of 1991.
Introduction

“The balance of payments of a country is a systematic record of all economic transactions between
the ‘residents’ of a country and the rest of the world. It presents a classified record of all receipts on
account of goods exported, services rendered and capital received by ‘residents’ and payments made
by them on account of goods imported and services received from the capital transferred to ‘non-
residents’ or ‘foreigners’.”
In the previous unit we have discussed the balance of trade, but the trade balance gives only a partial
picture of a country’s international obligations. In order to have a complete enumeration of international
transactions, it is necessary to add to the net trade balance all other payments and receipts—this is the
comprehensive balance of payments of a country in relation to the rest of the world.
The balance of payments of India is classified into (a) balance of payments on current account, and
(b) balance of payments on capital account. The current account of the balance of payments of India
includes three items : (a) visible trade relating to imports and exports; (b) invisible items, viz., receipts
and payments for such services as shipping, banking, insurance, travel, etc., and (c) unilateral transfers
such as donations. The current account shows whether India has a favourable balance or deficit
balance of payments in any given year. The balance of payments on capital account shows the
implications of current transactions for the country’s international financial position. For instance,
the surplus and the deficit of the current account are reflected in the capital account, through changes
in the foreign exchange reserves of country, which are an index of the current strength or weakness
of a country’s international payments position, are also included in the capital account.
32.1 India’s Balance of Payments on Current Account

1951-52 to 1955-56—The First Plan Period

During the First Plan period, the balance of payments was affected by the Korean War boom, American
recession of 1953 and favourable monsoon at home which helped to boost agricultural and industrial
production. (Refer Table 1).

372 LOVELY PROFESSIONAL UNIVERSITY