Page 390 - DECO503_INTERNATIONAL_TRADE_AND_FINANCE_ENGLISH

International Trade and Finance

Notes (iv) A purchase of foreign reserves by a country's central bank would be reflected as
(a) a credit in the capital account and a debit in the capital account.
(b) an entry in a separate account not in the balance of payments.
(c) a credit in the current account and a debit in the financial account.
(d) a credit in the financial account and a debit in the financial account.
(e) a debit in the current account and a credit in the financial account.
(v) What does the term "balance of payments deficit" refer to?
(a) A decrease in the financial account.
(b) A negative statistical discrepancy.
(c) A decrease in official international reserves.
(d) A positive statistical discrepancy.
(e) An increase in official international reserves.
(vi) What is the official settlements balance?
(a) Another name for the capital account.
(b) One of the accounts in the balance of payments.
(c) The balance of official transactions between the U.S. Treasury and the Bank of England.
(d) The balance of official transactions between the U.S. Treasury and the Federal Reserve
System.
(e) Everything in the balance of payments except for official international reserves.
32.4 Summary

• 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.
• Although the Government has been maintaining that the policy is neither liberal nor restrictive,
but the fact of the matter is that the policy led to a wave of indiscriminate liberalisation of
imports.
• On the other hand import of quite a large number of capital goods were brought under OGL.
These 208 items included micro-processor based equipment, machine tools, spinning machines,
jute machinery. In this wave of liberalisation, even in areas where indigenous machinery was
produced by BHEL, imports were allowed. While the MMTC and Department of Electronics
were not in favour of this indiscriminate liberalisation of imports, the powerful local and multi-
national lobbies were able to persuade the government to permit liberalisation even in areas
where an independent self-reliant indigenous sector was emerging. All this was done in the
name of hi-tech and upgration of technology. But as the then Prime Minister Mr. Rajiv Gandhi
himself conceded in one of his interviews, this triggered off what may be described as ‘’screw
driver industrialisation.”
• New economic reforms were initiated in 1991 and an effort was made to step up exports so that
a major part of the import bill is paid for by exports. Secondly, with a view to bring about
technological upgrdation, imports were liberalised. Along with this, in place of debt-creating

384 LOVELY PROFESSIONAL UNIVERSITY