Component of balance payment:
BOP is a statement that summarises all the economic transactions between residents (individuals, companies and other organisations) of the home country and those of all other countries. BOP accounting uses the system of double-entry book-keeping meaning thereby that every debit and credit in the account is also represented as a credit or debit somewhere else. Current Account and Capital Account are the two most important components of BOP. The following is a brief review of the concepts.
BOP on Current Account kcords flows of goods and services, and unilateral transfers such as gifts. The merchandise trade account is a major part of BOP for most countries. 1f merchandise exports of a country exceeds its Conversely, if imports exceeds exports, an unfavourable balance of trade arises. In short, the difference between such exports and imports is termed as trade balance.
Non-merchandise items are known as invisibles. These are sub-divided into services, investment income and transfer payments. Services include travel and tourism, transportation, financial, insurance, government and a variety of miscellaneous services. For instance, India's software services have recently been the fastest growing services exports. Investment income refers to receipts and payments of dividends, interest and profit arising out of Indian investment abroad and foreign investment in India. Transfer payments usually are in the nature of foreign aid, grants, gifts and foreign workers' remittances to their home countries. NRI's remittances are significant component of transfer payments in India.