What are the trends and problems of Indias Balance Of Payments

What are the trends and problems of Indias Balance Of PaymentsBalance of Payments ( wallop) of a state shows its stinting strengths and weaknesses. Most of the developing countries are deficit in their Balance of Accounts, India being no exception. Since independence, India has been facing this deficit or disequilibrium in terminal figures of whack, largely observed as a disaster in 1990-91, the stratum of the severe lie with crisis. At that time, India had foreign exchange reserve of meager 1 billion dollar, just sufficient to finance a months minute bill. The people was on the edge of defaulting. This crisis resulted in large surmount amendments in the countrys frugal policy, particularly known as the Structural Adjustment Program or parvenu Economic Policy (NEP) regime, center of attention being liberalization and globalization of the economy.We opted for a very prompt approach and at present after having surmounted the initial glitches of a newly liberalized economy, we have a somewhat comfortable BOP jibe. Even though we have arrived at a comfortable BOP position showing signs of a strong rising economy, BOP management still remains a tough walk for policy makers for taking any discussion, as now we are uncovered to all(prenominal) and every change in the global economic set-up.Trends problems of Indias BOP 1949-50 to 1999-2000The disequilibrium in Indias BOP has been accounted to both inside as well as external factors.The requirement for development of such a big nation with a large population is one of the main factors resulting in recurring BOP problem. The BOP is everlastingly under some pressure and had large deficits ascribable to high level of imports of food grains and dandy goods, the unintelligible external borrowings, their payment and poor exports.After independence, the primary challenge in front of the country was to scratch economic growth with social justice.Indias aim after accomplishing independence was to achieve e conomic self- reliance. For this the country had to take away both the internal as well as the external resources. Not only our engine room only our food availability was as well as on the backward stage. Hefty amounts of food grains had to be imported to hand over the demand of such a large population.Protectionist PoliciesThe main intention of the Second Five socio-economic class platform (1956-57 to 1960-61) was to achieve self reliance through industrialization. Self reliance was to be accomplished through import substitution. For this, essential industries had to be established which required import of capital goods. Exports were anticipated to take-off by own with approaching of industrialization. It was felt that with advent of industrialization, there will be an increase in crosswayion at seat that will be reflected in greater export earnings. The approach for import substitution was based on physical- interventionist, non-price policies like quotas, licensing and other physical ceilings on imports. Heavy capital goods were imported however other imports were relentlessly restricted to shut off opposition for promoting domestic industries. Mainly focus was on import substitution, with piggish disregard of exports. These inward looking protectionist policies did resulted in some self-reliance in the consumer goods industries, yet most of the capital goods industries remained majorly import intensive.The elevated degree of protection to Indian industries resulted in to inefficiency and poor quality products basically payable to lack of argument. The high cost of production further wrinkled our competitive strength.Rise in oil colour products demand, harvest failure, two oil shocks, all put acute strain on the economy. The BOP condition remained weak for the period of 1980s, till it arrived at the crisis bit in 1990-91 When India was on the brink of defaulting mainly due to intense debt burden and continually widening conduct deficit.Ex ternal DebtIndia had been an exercising choice to large collection plate foreign borrowings for its developmental activities in the field of fundamental social and industrial infrastructure. The countrys reserves were very a good deal restricted due to low level of per capita income and savings. The situation aggravated because Government of India resorted to large amounts of foreign borrowings to improve the BOP situation in the short run push through of frightening condition. With Seventh Five course of study Plan, the debt service obligations increased distinctly due to stiffer average provisions of external debt, including repayments to the IMF, commercial borrowing, and a vomit up in concessional aid flow.Export PromotionEven though by the Sixth Five Year Plan we had overcome the need of food grain imports and some crude oil was also produced domestically, BOP position was still not at ease attributed to low exports. The essential need for promoting export was realized d uring the 1960s. The Third Five Year Plan commenced certain promotion policies pertaining to export like tax exemptions, work drawbacks, cash compensatory schemes, Rupee devaluation etc. However it didnt showed significant improvements in exports.Indian exports depended largely on situation of world trade.We were chiefly primary product exporters, for which fluctuations in prices are very high in correct world market demand.Primary products exporting countries generally have unfavorable term of trade. The incomes from primary product exports were unstable and low.Secondly, the Indian products were not up to the mark in terms of quality and standard to let in world market.Third, mainly residue products were exported. The fact that export earnings contribute significantly to economic development was disregarded. Cumbersome procedures, rules and regulations for license etc served as disincentives for exporters. Domestic inflation further diminished the competitiveness of Indias expo rt. supervene upon RateThe fluctuation in the exchange value of the rupee was another posing problem. The steady devaluations (to further exports) enhanced the amount of external debt. The value of rupee was administered by the central bank (fixed exchange rate). The ample gap between official and market exchange rate generated difficulties for the exporters and importers. The stringent foreign exchange controls also persuaded Hawala trade.Trends in Indias BOP (2000-2010)The benefits of foreign trade were overlooked year after year. Indian entrepreneurs were withdrawing with low-priced, outdated technology and demolishing subsidies, generating a heavy national burden of large ailing public sector undertakings. scorn acting through an incentive based approach, government protection in fact damaged our industrial growth.The New Economic Policy of the ni interlockingies targeted for opening up of the economy, to permit free trade and competition and condense the role of government c onsiderably in foreign trade issues. Restrictions on international trade were detached, foreign coronations were allowed and a completely new Liberalized Exchange Management System was brought in to garner the benefits of competition and offset the drawbacks of a closed, inward looking trade policy.The alterations towards liberalization and globalization of the Indian economy were conceded out very vigilantly in stagecoachs. irrelevant InvestmentIndia effectively attracted Foreign investors to the country with its earnest verificatory economic transforms like reduced cumbersome formalities and other paperwork. From a scanty US$103 million net foreign investment in the year 1990-91, it has grown to us$ 8669 million in 2008-09.Foreign investments kept the country buoyant during the recent global meltdown period. Because the consequences of recession were worst in the highly-developed countries, the investors turned to the less affected rising economies like China and India. While initially foreign investment in the country did slow down significantly due to risk repugnance in the phase of the recession, but it picked up over again because rising economies like India and China were quick to execute tonic procedures to fight recession, showing creditable elasticity to the recession which badly affected the much developed economies. in that location was massive turn down in net capital flows from US $ 106.6 billion in 2007-2008 (8% of GDP) to US $ 7.2 billion (0.6 % of GDP) IN 2008-09.The turn down was mainly due to net outflows under portfolio investment. Despite this, the FDI influx remained floating at US $ 21.0 billion during Apr Sept. 2009 as against US $ 20.7 billion in Apr.-Sept. 2008. FDI inflow has been earlier in communication services, manufacturing, and real estate sector.Current Account of BOPThe current account of BOP consists of the merchandise trade (export and import) and the invisibles (services, transfers etc.). The liberalized policy and somewhat hassle free formalities for export and imports have provided a push to our export industries as well as industries catering to domestic demands. Exports and imports both witnessed double image growth rate. India is now a principally manufactured goods and services exporter deriving benefits from a better term of trade, as compared to what it was earlier, primary goods exporter, prior to 1991. The contribution of Indias exports in world trade has increased from 0.7 % in 2000 to 1.2 % in 2008. Services too have extended to various(a) fields catering to both domestic and international consumers.The current account balance broadened in 2008-09 (-2.4 % of GDP) compared to that of 2007-08 (-1.3% of GDP) attributed to recession, but it was sustainable. The external demand shock resulted in to the moderate of export growth from 57 % in April-June08 to (-) 8.4 % in Oct- Dec08 and further to (-) 20 % in January-March09, a declension for the first time since 2001-02. Imports too turn downed similarly due to domestic industrial demand and sharp fall in international crude oil and some other primary commodity prices.Indias net invisibles rose by 18.7% in 2008-09.With the economy (domestic as well as global) getting its pace of nervous impulse once again, there is hope of glare once again in the trade and financial world. India having cruised reasonably successful through the uneven scrap of recession can look further to garnering greater improvement from world market, at least till the time the developed economies which were poorly affected by recession, better fully. In short, the situation of BOP is quite well administered and contented. However, lessons from the occurrences of the financial crises taking place in various parts of the world from time to time, we are required to continue our vigilant approach towards BOP management. The country cannot meet the expense of a setback to its economic growth attained through large cuticle changes in national economic policies. India indeed has arrived a long way from the time of the days of the protectionist policies, but there is a lot to be accomplished yet, particularly in the sector of infrastructure, in revision to become a strong economy.