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What role the Invisibles play in Balance of Payment (BOP)?

What role the Invisibles play in Balance of Payment (BOP)?

Owlgen
Course: M.Com

1 Answer

ROLE OF INVISIBLES IN BOP:

In the exchange of goods and services between countries, there are visible and invisible exports and imports. Visible items mean those items, which are physically exported and imported, like merchandise,. gold, silver and other commodities. The invisible ones represent costs of services, income and transfer payments (i.e. payment and remittances unrequisite or without quid pro quo or without any payment obligations).

The IMF Manual classifies invisible account data under the following eight heads:
  • Travels.
  • Transportation.
  • Insurance.
  • Investment income.
  • Government.
  • Miscellaneous (receipts/payments for patents and royalties).
  • Transfer payments official.
  • Transfer payment private.

Around the 90s, there was a. great inflow into the invisibles account led by escalating private transfer, partly reflecting the conversion of Indian Development Bonds (IDBs), and a noteworthy improvement in software and other technology related exports. It caused quite a surplus and even the gross invisible receipts did more than offset the increase in net investment income payments. Behind the growing surplus under the net invisible was the relative stable growth in outflows as well as profits and dividends. It was, in fact, quite contrary to expectations in the aftermath of current account convertibility.

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September 15, 2019
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