Economics: BOP(Balance of Payment)

The balance of payments of a country is a systematic record of all economic transactions between the residents of the reporting country and residents of foreign countries during a given period of time.

A complete BoP account comprises the following two broad accounts: (a) Current Account; and (b) Capital and Financial Account.

Current Account:

The current account deals with the trade of goods and services between two countries.In international trade “invisibles” includes:

• Services (like transportation, financial services, travel, telecommunication, computer services and professional services)
• Transfer (It includes remittances from the Indian working abroad)
• Income (These are the income earned like profits, interest, and dividends from the ownership of overseas assets by Indian companies, government, and individuals)

While “goods ” are termed as visibles.

If Current Account balance is positive, then it is termed as Current account surplus and if it is negative then It is termed as Current Account Deficit(CAD).

Balance of Trade = export of goods –Import of goods. This is a part of current account balance.

Capital account Transactions:

It basically deals with investment and borrowings.  For example, foreign investment in India, how much money borrowed by  Indian companies. Similarly, Indians to open bank accounts in foreign countries; invest abroad; hold assets abroad etc.

It includes:

• Foreign direct investment (FDI) refers to long-term capital investment such as the purchase or construction of machinery, buildings or even whole manufacturing plants.
• FII(Foreign Institutional Investment)or Portfolio investment refers to the purchase of shares and bonds in Indian share market by the foreigners.
• ECB(External Commercial Borrowing) Money borrowed by Commercial companies from abroad.
• Sovereign Debt: Money borrowed by Govt of India