Introduction to

BOP (Balance of
Payments)
The Balance of Payments (BOP) is a record or statement that records all
the monetary transactions made between residents of a country and the rest
of the world during any given period. It summarizes all the flows of money
into and out of a country.
FEATURES OF BALANCE OF PAYMENT
(BOP)
1- BOP is wider term that include- Balance of Trade ( difference between the value of exports and imports of goods, i.e. visible items
only).

2- BOP include all economic transactions, visible, invisible and capital transfer.

• visible:- means export & import of physical goods.

• invisible:- means the import and export of services like- banking, consultancy legal, architecture,

management services, etc..

• Capital transfer:- are concerned with capital receipts and capital payment . It includes-

purchase/sale of capital assets like- land, building, plant & machinery etc,..
Components of
BOP
The BOP is divided into three main components: the Current Account,
the Capital Account, the Financial Account(covering Official Reserves
Account).

Current Capital
Account Account
Records transactions in Covers all the international
goods, services, income, and transactions related to
unilateral transfers. purchase and sale of assets.

Financial Account (official reserve

A/c)
It includes govt. owned assets such as- gold and special
drawing rights (SDRs)
Tracks the flow of financial assets like stocks, bonds, and loans.
Current Account
The Current Account records the flow of goods, services, income, and unilateral transfers between a country
and the rest of the world.

Balance on current account has 2 components:-

Balance on Balance on
Trade invisibles
When exports of goods are equal to imports of When export of services are equal to imports of
goods. (BOT=> Export=import) services.
Surplus or deficit service export=service import

high Export = surplus ex- shipping, tourism, software services, etc…

high import = deficit

Capital Account
The Capital Account captures all the international transactions which are related to purchase and sale of assets .

Fund inflow/outflow relating to investments, short term borrowings/lending, and medium to long term borrowing/lending.

1 INVESTMENTS 2 EXTERNAL BORROWINGS (loans and

FDI - purchase of asset, that gives direct control to advances)
buyer over assets.
how much loan does a country has given or taken.
FPI- represent investment in foreign shares and
bonds that does not involve acquisition and control.
Financial Account
• The Official Reserves Account monitors changes in a
country's foreign currency reserves, including gold, Special
Drawing Rights (SDRs), and foreign exchange.

• It includes - govt. owned assets such as gold, and Special

drawings rights (SDRs), held with the international monetary
fund (IMF).

• EX- The financial assets of govt. held in the central bank are
foreign exchange reserves.

• It basically records all the changes in foreign exchange

reserves,……….how much the drawings has increased or
decreased,,,,,,,etc…
BOP Statement for the Last 5 Years
(data)
The BOP statement for the last 5 years would show the balance of transactions for each component, highlighting trends and changes
over time.
Trends and Observations from the last 5 years
data
Based on the provided Balance of Payments (BOP) data for the last five years (2019-2023), I
will analyze the trends and offer key observations across the major categories, focusing on the
current account, capital account, financial account, and reserves. Here are the
CURRENT ACCOUNT
insights:
TRENDS:-
The current account balance fluctuates with deficits across most years, except for 2020, where there is a surplus.

⚬ 2019: Deficit of -29,762.9

⚬ 2020: Surplus of 32,730.0

⚬ 2021: Deficit of -33,422.4

⚬ 2022: Significant deficit of -79,050.9

⚬ 2023: Deficit of -30,246.0

OBSERVATION:-

⚬ 2020 saw a rare surplus, due to global pandemic-related disruptions, lower imports, and demand.

⚬ There was a sharp increase in the deficit in 2022, likely driven by higher imports of goods.

⚬ The deficit decreased slightly in 2023 but remained significant.

GOODS AND SERVICES

BALANCE:-

• Goods Balance (Exports minus Imports):

• The trade balance in goods has consistently been in deficit, with the highest deficit in 2022.

⚬ 2022: Goods deficit peaked at -267,187.6

⚬ 2023: Deficit decreased slightly to -243,757.5, reflecting a potential recovery in exports.

• Exports show a steady increase from 2020, peaking in 2022.

• Services Balance:

• The balance of services is positive, with increasing exports of services each year.

• Services exports grew steadily from $214,761.5 million in 2019 to $337,540.3 million in 2023.

• Imports of services grew at a slower rate, allowing the services surplus to contribute positively to the BOP.

OBSERVATION-

⚬ The steady increase in services exports (e.g., IT, outsourcing) is a key strength in the economy.
CAPITAL ACCOUNT
TRENDS:-
• The capital account balance has consistently been in a small deficit. It indicates that capital transfers (e.g., debt forgiveness, foreign aid) are minimal.

• There was a significant narrowing of the deficit in 2022 (-59.6) and 2023 (-122.5), showing less activity in capital transfers.

FINANCIAL ACCOUNT
TRENDS:-
• The financial account balance shows net outflows (negative values) in most years, indicating that the country is investing more abroad than it is receiving in
foreign investment.
⚬ 2020: Largest outflow at -69,767.7 million.

⚬ 2023: Outflow continues but is somewhat reduced at -68,326.6 million.

• Direct Investment:

⚬ Assets (outward investment) remain relatively stable.

⚬ Liabilities (inward investment) have decreased significantly in 2023 (Rs. 28,070.2 million), down from Rs. 50,610.6 million in 2019, suggesting
reduced foreign direct investment (FDI) inflows.
• Portfolio Investment:

⚬ Portfolio investment liabilities show high volatility, especially in 2022, when liabilities were negative (-17,529.3), indicating significant foreign
investment withdrawals, but rebounded in 2023 with Rs. 31,459.0 million in portfolio liabilities.

OBSERVATION-

⚬ The financial account is characterized by continued outflows, reflecting the country’s investments abroad.
RESERVES AND RELATED
ITEMS:-
• Reserves show a consistent increase through 2019 to 2021, with the largest accumulation in 2020 (Rs.
103,853.3 million), reflecting efforts to build foreign currency reserves during periods of surplus or inflows.
• 2022 saw a sharp reduction in reserves (-30,610.4 million), potentially due to interventions to stabilize the
currency or manage the current account deficit.
• In 2023, reserves rebounded with an increase of 38,216.6 million, indicating renewed accumulation of reserves.
OBSERVATION-
• Trade Deficit: The goods trade deficit remains the primary source of the current account deficit, but the growing services
sector helps mitigate the impact.
• Investment Inflows: There was a decline in FDI inflows in 2023, potentially reflecting global economic uncertainties or
reduced investor confidence.
• Reserves: The country built up substantial foreign reserves, which were drawn down during difficult periods but were
replenished in 2023.
Factors Influencing
BOP
The BOP is influenced by various factors, including global economic conditions, government policies, and exchange rate fluctuations.

Global Economic Government Exchange Rate

Conditions
Recessions or expansions in major Policies
Trade policies, tax incentives, and Fluctuations
Changes in the exchange rate affect the
economies impact trade and investment regulations affect the flow of goods, price of exports and imports, influencing
flows. services, and capital. trade flows.
Importance of BOP
Monitoring
Monitoring the BOP is crucial for policymakers and economists to
understand a country's external position and economic health.

1 Economic 2 Policy
Stability
A strong BOP signals a Formulation
BOP data informs policy
healthy economy and decisions regarding trade,
reduced risk of financial investment, and foreign
instability. exchange management.

3 Investment
Decisions
Investors use BOP data to assess a country's economic prospects
and make investment decisions.
 THANK
YOU!
BY- ADITI KUKREJA, ABHISHEK KUMAR,