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Unit 32 : India’s Balance of Payment

inflows of capital, non-debt creating inflows such as foreign direct investment as well as portfolio Notes
investment were encouraged.
• There is no doubt that both international and domestic factors have contributed to the
deterioration in the balance of payments in 1997-98 and this is reflected by the increase in
current account deficit to 1.4 per cent of GDP and trade deficit rising to 4.9 per cent of GDP in
2004-05. The situation has deteriorated further and the trade deficit as per data available form
DGCI&S is of the order of US $ 9.2 billion in 1998-99. This is because export (in US dollar terms)
declined to US $ 34.3 billion in 1998-99 as against US $ 35.6 billion in 1997-98. The trade deficit
has reached an unprecedented level of US $ 7.9 billion in 1998-99.
• India has achieved commendable success in its receipts from invisibles. As a consequence, surplus
from invisibles not only wiped out deficit in balance of trade, but also created a positive balance
on current account. For instance, in 2003-04, trade deficit was of the order $ 13.7 billion, but the
surplus from invisibles shot up to $ 27.8 billion. As a result, the balance of payment on current
account became positive to the extent of $ 14.1 billion.
32.5 Key-Words

1. Development planning : Personal development planning is the process of creating an action
plan based on awareness, values, reflection, goal-setting and
planning for personal development within the context of a career,
education, relationship or for self-improvement.
2. Balance of payments deficit : An imbalance in a nation's balance of payments in which
payments made by the country exceed payments received by the
country. This is also termed an unfavorable balance of payments.
It's considered unfavorable because more currency is flowing out
of the country than is flowing in. Such an unequal flow of currency
will reduce the supply of money in the nation and subsequently
cause an increase in the exchange rate relative to the currencies
of other nations. This then has implications for inflation,
unemployment, production, and other facets of the domestic
economy. A balance of trade deficit is often the source of a balance
of payments deficit, but other payments can turn a balance of
trade deficit into a balance of payments surplus.

32.6 Review Questions

1. Discuss the balance of payments on current account.
2. Write a short note on the balance of payment crisis.
Answers: Self-Assessment
1. (i)(a) (ii)(e) (iii)(c)
(iv)(d) (v)(c) (vi)(e)
32.7 Further Readings

1. Krimawati, Wawat. (?) NAFTA: North America Free Trade Agreement. [Accessed
18 May 2009]
2. Vogel, David. (2009) North American Free Trade Agreement. [Accessed 18 May
2009] 2009. North American Free Trade Agreement (NAFTA).
3. United States Department of Agriculture, Foreign Agricultural Service. [Accessed
June 8, 2009]

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