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Discuss the Important Features of India’s Balance of Payment (BOP).

Discuss the Important Features of India’s Balance of Payment (BOP).

Owlgen
Course: M.Com

1 Answer

The salient features of India’s BOP are:

  • India has always faced trade deficits except in 1972-73 and 1976-77 when there was a small surplus.
  • Trade deficit increased from plan to plan with the exception of the fourth plan when the trade deficit declined.
  • The rate of growth of export varied from plan to plan.
  • Net invisible receipts have been always positive.

The crisis in the balance of payment during 1990-91 and in the first quarter of 1991-92 made it necessary to mobilize additional external funds to close the gap. The task of the government was difficult because of the sinking international faith in our economy. In the end, the government succeeded in getting additional finance from the IMF, the World Bank and some bilateral donors, especially Japan.

Fiscal deficit affects not only the growth and stability, but has a crucial bearing on the balance of payment strategy. Strategy to ensure a viable balance of payments calls for corrections in fiscal imbalance as well.

External assistance utilization has been at a low level. A considerable part of authorized loans has always remained in the pipeline. The main reason for underutilisation of assistance is because of the unnecessary time lag between commitments and conclusions of any given credit arrangement, time-consuming procedures and also budgetary constraints in making available counterpart funds.

The collapse of USSR and emergence of a number of independent states out of it badly hit country’s exports. India’s ‘balance of payments thus continued to be under stress.

The underlying weaknesses of the balance of payments stayed. The declining support from net invisible receipts due to interest payments, feeble industrial and export performance and high rate of inflation became constant hurdles in the way of securing a sustainable balance of payments.

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September 14, 2019
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