BOP, foreign trade.pdf - Lesson: BOP Deficits, Foreign...

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Lesson: BOP Deficits, Foreign Trade Measures andPoliciesLesson Developers: Vaishali kapoor and RakhiAroraCollege/Department: Delhi University
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Table of Contents:1.Introduction to Balance of Payments2.BOP disequilibrium2.1it’sCauses2.2 BOP crisis in India2.3 Rationale for reforms in 19913.Correcting BOP disequilibrium3.1 Steps to correct BOP3.2Measures adopted in India4.Export Promotion4.1 Export Promotion in India4.2 Organization for promoting export4.3 Export Promotion Measures in India5.Trade Policy6.Multi National Corporations6.1 pros and cons of MNCs6.2 Role of MNCs in India7.Summary8.Exercises9.Glossary10.ReferencesLearning Outcomes:After studying this chapter, a student should be able to:-1.Define Balance of Payments2.Justify rationale for reforms in India.3.Mention steps to correct BOP deficit.4.List Export promoting organizations in India.5.State export promotion measures in India.6.Explain trade policies undertaken by GoI.7.Understand role of MNCs in India.
1.Introduction to Balance of PaymentsBalance of Payment of a country is a systematic record of all economic transactions betweena country & rest of the world, for a given financial year.BOP is the difference betweenreceipts from and payments to foreign countries. BOP is favorable if receipts exceedpayments.Balance of Payments has two accounts:i)Current AccountCurrent account records value of export & import of goods and services andinterest, profit & dividends and remittances. All the receipts are credit items andpayments are on debit side of current account. If receipts exceed payments thenit is called current account surplus and if payments exceed receipts it is said tohave deficit in current account.ii)Capital AccountCapital account is summary of investment and borrowings. Foreign investmentand a country’s borrowings are credit (receipts) and investment abroad andlending are debit items (payments). Similar to current account, capital account isin surplus if receipts exceed payments& vice-a versa.It is expected that if there is current account deficit then it will be nullified by capitalaccount surplus or vice-a-versa or else, both accounts are in balance.BOP remains alwaysare balance i.e. total receipts equal total payments.If imports exceed exports then tomanage CAD, a country either needs to borrow or sell assets abroad. During 1980s, Indiamaintained a current account deficit. Simultaneously,India’s ability to manage its economyeroded which shook international financial community’s confidence and international creditratings downgraded and access to external credit was denied.This all created deficit incapital account as well during the same time when India had CAD (1980s). The deficit intwo accounts was paid by fall in reserves and reserves fellto just above $1 billion (Dec’91).Reserves fell so low that India’s only a week’s requirement of imports could be fulfilled.This chapter has five sections. First section covers causes of BOP disequilibrium and causes

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Exploring Microeconomics
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