India’s BoP at Current Account

As we studied above, the BoP in India has been classified into

  • BoP at current account
  • BoP at Capital Account

India’s BoP at Current Account

This is calculated as follows:

Exports

– Imports

= Trade Balance (1)

Invisible Payments

– Invisible Receipt

= Net Invisibles (2)

(1) + (2) = BoP on Current Account.

This can be understood by the following table taken from Economic Survey of India 2010-11.

The above picture is again partial unless we see the historical trend of BoP of the country. Its worth note that from 1951 till 1990-91, the Net Invisibles of the country was always positive. It was for the first time in 1990-91, that the Net invisibles of the country went to a negative zone with a deficit of Rs. 433 Crore. The net invisibles work a a cushion to neutralize the Trade deficit of the country. In 1990-91, there was a large net outflow of the investments from the country, and the total BoP of the country went to Rs. 17367 Crore. The following table shows the Trade deficit & Current Account of the country since 1990-91:

Year

Trade Deficit  

Net Invisibles  

BoP 

1990-91 

-16934 

-433 

-17367 

1991-92 

-6494 

4259 

-2235 

1992-93 

-17239 

4475 

-12764 

1993-94 

-12723 

9089 

-3634 

1994-95 

-28420 

17835 

-10585 

1995-96 

-38061 

18415 

-19646 

1996-97 

-52561 

36279 

-16282 

1997-98 

-57805 

36279 

-16282

1998-99 

-55478 

36922 

-20883 

1999-2000 

-77359 

38689 

-16789 

2000-2001 

-56737 

57028 

-20331 

2001-2002 

-54955 

45139 

-11598 

2002-2003 

-51697 

71381 

16426 

2003-2004 

-63386 

127369 

75672 

2004-2005 

-151765 

139591 

76205 

2005-2006 

-229665 

185927 

34162 

2006-2007

-279962 

235579 

-44383 

2007-2008 

-367664 

Top of Form

304185Bottom of Form

-63479 

2008-2009 

Top of Form

-543158

Bottom of Form

Top of Form

411544

Bottom of Form

-131614 

2009-2010 

Top of Form

-555659Bottom of Form

Top of Form

374901Bottom of Form

-180758 

 

The above data gives an Inverted U shape of chart of India’s BOP (Current Account)


The survey notes that the BoP developments during 2009-10 indicate that despite lower trade deficit, current account deficit widened on account of slowdown in invisible receipts. There was also sharp increase in capital flows, which led to accretion in foreign exchange reserves. The current account deficit of 2.8 per cent of the gross domestic product (GDP) in 2009-10 vis-a-vis 2.3 per cent in 2008-09, however remained well within manageable limits. The net capital flows increased substantially to 3.8 per cent of GDP in 2009-10 as compared to 0.5 per cent in 2008-09. This led to net accretion of US$ 13.4 billion in foreign exchange reserves on BoP basis, as against the net outflow of US$ 20.1 billion in 2008-09.

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