What is Balance of Payments?
- Balance of Payments (BoP) statistics systematically summaries the economic transactions of an economy with the rest of the World for a specific period.
- BoP broadly comprises current account, capital account and changes in foreign exchange reserves.
- Current account of the BoP includes merchandise (exports and imports) and invisibles.
- Invisible transactions are further classified into three categories, namely
- Services-travel, transportation, insurance, Government not included elsewhere (GNIE) and miscellaneous (such as, communication, construction, financial, software, news agency, royalties, management and business services);
- Income; and
- Transfers (grants, gifts, remittances, etc.) which do not have any quid pro quo.
- The main components of the capital account include foreign investment, loans and banking capital.
- Foreign investment, comprising Foreign Direct Investment (FDI) and Portfolio Investment consisting of Foreign Institutional Investors (FIIs) investment, American Depository Receipts/Global Depository Receipts (ADRs/GDRs) represents non-debt liabilities, while loans (external assistance, external commercial borrowings and trade credit) and banking capital, including non-resident Indian (NRI) deposits are debt liabilities.
Why in News?
- According to the latest RBI data, India recorded a surplus of $19.8 billion (3.9% of GDP) in its current account balance in the first quarter of FY21.
- India registered a surplus of $0.6 billion (0.1% of GDP) in the preceding quarter. A deficit of $15 billion (2.1% of GDP) was recorded a year earlier.
- The surplus in the current account in the first quarter of 2020-21 was on account of a sharp contraction in trade deficit to $10 billion due to a steeper decline in merchandise imports relative to exports on a year-on-year basis.