Issctes related to balance of payments, Macroeconomics

ISSUES RELATED TO BALANCE OF PAYMENTS:

It  is to be remembered that the Indian economy witnessed varying intensities of BOP problem during 1956-9  1.  However over the 1990s, India's BOP  position improved considerably coinciding with liberalisation of overall external sector. No  doubt, this  improvement can be visualised  in  the context of changing composition of BOP during  this period. For instance, massive trade deficit has been and continues  to be sustained with rising invisible receipts; non-debt flows have generally exceeded the debt flows and liquidity risk has been managed with different types of flows. During this period much attention has also been paid  to curreqt account sustainability. Also, issues related to capital account liberalisation  and  its convertibility have been under  close scrutiny by  high- powered Expert Committees. While these aspects of our BOP merit detailed discussions, it is important to mention here two important features of India's BOP on current account. 

First, India's medium term current account surplus (2001  -02/2003-04)  has been structurally different from  those of many other developing countries. Since for most of  those countries it is  their merchandise trade account surplus reflecting high merchandise export growth. But India's current account surplus was largely on account of services receipts as the trade account recorded a deficit of the order of an average of2.8 percent of GDP during  the same period. Second,  the resurgence of current account deficit in the subsequent years indicates an end of  a period of export of domestic savings and resumption of the role of foreign savings in financing higher investment and growth in the economy. Rather on the contrary, developing countries  such  as China, South Korea, Malaysia, Thailand, Indonesia, Argentina and Brazil continued to record current account surpluses  reflecting the counterpart of massive current account deficit of USA.

 

Posted Date: 11/9/2012 5:02:51 AM | Location : United States







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