MENAING OF BALANCE OF PAYMENT IN INDIA,CAUSES AND SUGGESTION TO MAKE FAVORABLE BALANCE OF PAYMENTS

·         INDIA’S BALANCE OF PAYMENTS
INDIAN ECONOMY

·         MEANING OF BALANCE OF PAYMENTS

•     THE BALANCE OF PAYMENT 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 THE RESIDENTS AND PAYMENTS MADE BY THEM ON ACCOUNT OF GOODS IMPORTED AND SERVICES RECEIVED FROM THE CAPITAL TRANSFERRED TO NON RESIDENT OR FOREIGNERS

•     BALANCE OF PAYMENT OF INDIA IS CLASSIFIED INTO

•               BALANCE OF PAYMENT IN CURRENT ACCOUNT

1.       VISIBLE ITEMS RELATING TO IMPORT AND EXPORT

2.       INVISIBLE ITEMS OF RECEIPTS AND PAYMENTS FOR SUCH SERVICES AS SHIPPING,BANKING,INSURANCE AND TRAVEL ETC

3.       UNILATERAL TRANSFERS SUCH AS DONATIONS

•               BALANCE OF PAYMENT ON CAPITAL ACCOUNT:

COMPRISES CREDIT AND DEBIT TRANSACTION UNDER NON PRODUCED,NON FINANCIAL ASSETS AND CAPITAL TRANSFER BETWEEN RESIDENTS AND NON RESIDENTS

111. THE FINANCIAL ACCOUNT REFLECT NET ACQUISITION AND DISPOSAL OF FINANCIAL ASSETS AND LIABILITIES DURING A PERIOD.

•     BALANCE OF PAYMENTS

1.       FAVORABLE OR UNFAVORABLE BALANCE OF PAYMENTS REFERS TO FAVORABLE OR UNFAVORABLE ON CURRENT ACCOUNT. UNFAVORABLE BALANCE OF PAYMENTS MEANS INDIA’S VISIBLE AND INVISIBLE IMPORTS ARE MORE THAN VISIBLE AND INVISIBLE EXPORT

2.       FAVORABLE BALANCE OF PAYMENTS MEANS THAT INDIA’S FOREIGN  ARE MORE THAN VISIBLE AND INVISIBLE IMPORTS

·         BALANCE OF TRADE:-

•               INCLUDES THE DIFFERENCE BETWEEN IMPORT AND EXPORT OF GOODS VISIBLE ONLY

•     CAUSES OF UNFAVORABLE BALANCE OF PAYMENTS

1.       IMPORT OF MACHINERY: SINCE INDEPENDENCE IMPORT OF MACHINERY HAS INCREASED DUE TO INDUSTRIALIZATION.

2.       IMPORT OF WAR EQUIPMENT:- IN ORDER OT DEFEND ITSELF AGAINST CHINA AND PAKISTAN,LARGE AMOUNT OF WAR EQUIPMENT WERE IMPORTED BY INDIA. THESE IMPORTS HAS CAUSED DISEQUILIBRIUM IN THE BALANCE OF PAYMENT

3.       MORE DEMAND OF CONSUMPTION OF GOODS: LARGE AMOUNT OF OILSEEDS,TEA AND IRON ORES ETC USED TO EXPORT OUT OF INDIA. NOW BECAUSE OF INCREASE IN POPULATION THEIR DEMAND WITH IN THE COUNTRY HAS GONE UP

4.      

5.       PRICE DISEQUILIBRIUM:- THERE HAS BEEN WIDE DIFFERENCE IN THE DOMESTIC PRICES OF THE GOODS AND THE PRICES OF THE GOODS IN FOREIGN COUNTRIES.

6.       EXPENDITURE ON FOREIGN EMBASSIES:-INDEPENDENT INDIA HAD TO ESTABLISH ITS POLITICAL RELATION WITH OTHER COUNTRIES. IT HAS TO SET UP ITS EMBASSIES IN FOREIGN COUNTRIES ETC. IT WAS AN EXPENSIVE AFFAIR

7.       FOREIGN COMPETITION:-INDIA MAINLY EXPORT JUTE,TEA AND TEXTILES BUT NOW FOREIGN COMPETITION IN THESE GOODS IS GROWING. BANGLADESH IS INDIA’S RIVAL IN JUTE EXPORTS AND SRI LANKA AND INDONESIA IN THE EXPORT OF TEA AND KOREA AND CHINA IN THE EXPORT OF CLOTH

8.       PAYMENTS OF INTEREST ON FOREIGN DEBTS:-THE HUGE INTEREST BURDEN ALSO CAUSED DISEQUILIBRIUM IN THE BALANCE OF PAYMENT, THIS ITEM DOES NOT AFFECT BALANCE OF TRADE AS IT IS INVISIBLE ITEM

9.       INCREASE IN PRICE OF CRUDE OIL:-VALUE OF IMPORT HAS GONE ON ACCOUNT OF CONSTANT HIKE IN THE PRICE OF CRUDE OIL.

10.    LESS GROWTH IN EXPORTS:-DESPITE VARIOUS EXPORT PROMOTIONS OUR EXPORT GROWTH ARE STILL LESS THAN IMPORT. IN 2017 OVER ALL GROWTH OF EXPORT ROSE BY 9.8% IN 2017-2018 BUT IMPORT WENT UP BY 20%

11.    GULF WAR: IN 1991.GULF WAR BETWEEN IRAQ AND SEVERAL WESTERN COUNTRIES HAD ADVERSE EFFET ON INDIA’S BALANCE OF PAYMENT

12.    DISINTEGRATION OF USSR HAS ALSO ADVERSE EFFECT

•     SUGGESTION

1. PROMOTION OF EXPORT:- BETS MEASURE IS PROMOTE EXPORT FOR CORRECTING ADVERSE BALANCE OF PAYMENT. TAXES ON EXPORT GOODS SHOULD BE WITHDRAWN. EXPORT INDUSTRIES SHOULD BE PROVIDED RAW MATERIAL AND TRANSPORT FACILITIES AT REDUCED PRICES
2. INCREASE IN PRODUCTION:- TO CUT DOWN IMPORT AND ENCOURAGE EXPORTS IT IS ESSENTIAL THAT AGRICULTURE,INDUSTRIAL AND MINERAL PRODUCTION BE INCREASED.
3. TRADE AGREEMENTS:-GOVERNMENT OF INDIA ENTERS INTO TRADE AGREEMENTS WITH THE GOVERNMENT OF OTHER COUNTRIES IN ORDER TO EXPAND TRADE.
4. ENCOURAGEMENT TO FOREIGN INVESTMENT:-FOREIGN INDUSTRIES AND MULTINATIONAL CORPORATIONS ARE ENCOURAGED TO INVEST CAPITAL IN FACILITIES. SPECIAL FACILITIES ARE PROVIDED TO ATTRACT FOREIGN CAPITAL
5. ATTRACTION TO FOREIGN TOURISTS:- ATTRACTIVE PICNIC SPOTS BE DEVELOPED IN DIFFERENT PARTS OF  THE COUNTRY TO ATTRACT FOREIGN TOURISTS. GOVERNMENT SPENDS LOT OF MONEY TO DEVELOP SUCH RESORT. BESIDES FOREIGN TOURISTS BE PROVIDED WITH TRANSPORT AND OTHER FACILITIES.
6. DEVALUATION OF INDIAN CURRENCY: LOWERING THE VALUE OF DOMESTIC CURRENCY IN TERMS OF FOREIGN CURRENCIES IS CALLED DEVALUATION. A COUNTRY RESORT TO DEVALUATION WHEN ITS EXPORTS FALLS SHORT OF IMPORT.AS A RESULT OF DEVALUATION, IMPORT BECOMES DEARER AND EXPORT CHEAPER
7. DEFLATION:- IT  MEANS THE PRICES OF THE GODS PRODUCED IN THE COUNTRY SHOULD BE BROUGHT DOWN, AS A RESULT OF IT,FOREIGNERS WILL GET EXPORT OF GOODS AT CHEAPER PRICES, EXPORT WILL BE ENCOURAGED. DEMAND FOR IMPORT WILL BE LESS
8. RESTRICTION ON ESSENTIAL IMPORT:- RESTRICTION ON IMPORT OF LUXURY GOODS,ISSUE OF LICENSEE FOR IMPORT OF ESSENTIAL GOODS ONLY, FIXATION OF QUOTA AND LEVYING OF IMPORT DUTY
9. IMPORT SUBSTITUTION:-IMPORT SUBSTITUTION MEANS TOTAL OR PARTIAL REPLACEMENT OF IMPORT PRODUCT WITH DOMESTIC PRODUCT OF THE SAME FUNCTIONAL REQUIREMENT MAINLY MADE FROM INDIGENOUS MATERIAL AND KNOW HOW.
10. SETTING UP OF SPECIAL ECONOMIC ZONES:- THE SPECIAL ECONOMIC ZONES SET UP TO BOOST EXPORT FROM THESE AREAS WILL BE FURTHER STRENGTHENED. IN THESE ZONES OF INTERNATIONAL QUALITY WILL BE SET UP. SEZS WILL CONTINUE TO GET INCOME TAX CONCESSION, EXEMPTION FROM CUSTOM AND EXCISE DUTIES.
11. LESS CONSUMPTION OF CRUDE OIL:AS CRUDE OIL IS THE LARGEST ITEM OF OUR IMPORTS SO GOVERNMENT SHOULD FIND OUT THE ALTERNATE SOURCES OF ENERGY AND SHOULD DEVELOP EFFICIENT MASS TRANSPORT SYSTEM. IT WILL HELP THE REDUCE THE CRUDE OIL IN  INDIA.