Balance of payments

The balance of payments of a country is a record of its monetary transactions with other countries of the world during a given period (in a year). 

Presents a classified record of all receipts on account of goods exported, services rendered and capital received by residents, and payments made by them on account of goods imported and services received from, and capital transferred to nonresidents’ or foreigners. 

Balance of payments is a much wider term as compared to balance of payments. 

BOT refers only to merchandise imports and exports. 

BOP refers to all economic transactions with the outside world. 

The BOP of India is classified in to: 

a) Balance of payments on current account, and 

b) Balance of payments on capital account. 

The current account of the balance of payments of India includes: 

i. Visible trade relating to imports and exports; 

ii. Invisible items, viz., receipts and payments for such services as shipping, banking, insurance, travel, etc., and 

iii. Unilateral transfers such as donations. 

The current account shows whether India has favorable balance or deficit balance of payments in any given year. 

The balance of payments on capital account shows the implications of current transactions for the country’s international position. 

The surplus and deficit of the current account are reflected in the capital account, through changes in the foreign exchange reserves of the country, which are an index of the current strength or weakness of a country’s international position, are also included in the capital account.