Balance of Payments (BoP):
It is the statistics that systematically summarize:
- the economic transactions of an economy with the rest of the world
- for a specific period-usually a year.
- Typically, the transactions included in BoP are country's exports and imports of goods, services, financial capital, and financial transfers.
- The compilation and dissemination of BoP data is the prime responsibility of RBI.
- The concept of “residence” and not citizen is central to BoP compilation.
The Balance of Payments (BoP) can be broadly divided into two accounts namely:
|
BoP Surplus |
Balanced BoP |
BoP Deficit |
|
Credit Side > Debit Side |
Credit Side = Debit Side |
Credit Side < Debit Side |
The Current Account:
It measures the transfer of real resources (goods, services, income and transfers) between an economy and the rest of the world.
The
current account is subdivided into:
The Merchandise Account:
It consists of transactions relating to Exports and Imports of goods and is said to be trade in goods.
Invisible Account:
Current account except merchandise account is called as Invisible Account. Invisible Account comprises of:
- Services Account
- Income and Current Transfers
Services Account:
Services Account refers mostly to the transportation and insurance of merchandise shipments, transport fares paid by travelers, tourist services (hotels, restaurants), royalties and license fees, communications, software services,ITES, construction, house rentals, government purchases (in connection with embassies) and other items.
Income and Current Transfers:
- Income may be derived from labor, and from financial assets or liabilities.
- Financial income is interest income on investment on financial assets and dividends on corporate stocks.
Primary vs Secondary Income:
RBI used the term primary income for factor and Non-factor income while the term
secondary income for Current Transfers.
Current transfers:
- Transfer payments are the receipts which the residents of a country get for ‘free’, without having to provide any quid pro quo.
- They could be given by the government or by private citizens living abroad in the form of gifts, remittances and grants.
- Government transfers are donations by countries in the form of grants and gifts while the main component of private current transfers is usually workers’ remittances and gifts.
