Balance of Payment

Category: Global Economy Sub-category: Indian Economy
Document type: article


Balance of Payment

Since independence, India's balance of payments on its current account has been negative. Since liberalisation in the 1990s (precipitated by a balance of payment crisis), India's exports have been consistently rising, covering 80.3% of its imports in 2002–03, up from 66.2% in 1990–91. Although India is still a net importer, since 1996–97, its overall balance of payments (i.e., including the capital account balance), has been positive, largely on account of increased foreign direct investment and deposits from non-resident Indians; until this time, the overall balance was only occasionally positive on account of external assistance and commercial borrowings. As a result, India's foreign currency reserves stood at $285 billion in 2008, which could be used in infrastructural development of the country if used effectively.

India is a net importer: Per the CIA factbook in 2007, imports were $224bn and exports $140bn. Shown here is the cargo of a container ship being unloaded at the Jawaharlal Nehru Port, Navi Mumbai.

India's reliance on external assistance and commercial borrowings has decreased since 1991–92, and since 2002–03, it has gradually been repaying these debts. Declining interest rates and reduced borrowings decreased India's debt service ratio to 4.5% in 2007.In India, External Commercial Borrowings (ECBs) are being permitted by the Government for providing an additional source of funds to Indian corporates. The Ministry of Finance monitors and regulates these borrowings (ECBs) through ECB
policy guidelines.

India’s balance of payments position has remained comfortable during 2007- 08 so far. The merchandise trade deficit, on balance of payments basis, increased from US$ 16.9 billion in April-June 2006 to US$ 21.6 billion in April-June 2007. Net surplus on the invisibles account exhibited buoyancy during the first quarter of 2007-08, led by exports of software, business services and private remittances, and continued to finance a large part (78.2 per cent) of the merchandise trade deficit.

Despite large merchandise trade deficit, higher net invisible surplus contained the current account deficit (US$ 4.7 billion) during the first quarter of 2007-08 at broadly the same level (US$ 4.6 billion) as in the first quarter of 2006-07. The current account deficit was financed by capital flows that have remained large during 2007-08 so far.

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