• UGI USER
  • Jul 07, 2024
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INDIA’S BALANCE OF PAYMENTS: UNDERSTANDING THE DYNAMICS

Why in the news?

  • India’s current account showed a surplus in Q4 of 2023-24, marking the first surplus in 11 quarters.
  • Movements in the current account are significant as they affect the rupee’s exchange rate, India’s sovereign ratings, and overall economic health.
 Source: Textbook

What is Balance of Payments?

  • Definition: The Balance of Payments (BoP) records all financial transactions made between residents of a country and the rest of the world.
  • Components: It includes two main accounts: the Current Account (covering trade in goods and services) and the Capital Account (covering investments like FDI and FII).
Constituents of the BoP

  • Current Account: Divided into the trade of goods (exports and imports) and trade of services (invisibles like banking, insurance, and remittances).
  • Capital Account: Includes investments such as Foreign Direct Investment (FDI) and Foreign Institutional Investments (FII).
  • BoP Balancing: The BoP table balances through changes in foreign exchange reserves, with the RBI managing surplus dollars to stabilize the rupee.

Associated Article:

https://universalinstitutions.com/balance-of-payments/