Question
Explain the concept of balance of payments. How is it classified? Describe salient features of India’s balance of payments
Answer :
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Skip in 10
A statement that summarizes an economy’s transactions with the rest of the world for a specified time period. The balance of payments, also known as balance of international payments, encompasses all transactions between a country’s residents and its nonresidents involving goods, services and income; financial claims on and liabilities to the rest of the world; and transfers such as gifts. The balance of payments classifies these transactions in two accounts – the current account and the capital account. The current account includes transactions in goods, services, investment income and current transfers, while the capital account mainly includes transactions in financial instruments. An economy’s balance of payments transactions and international investment position (IIP) together constitute its set of international accounts.
Balance of payments refers to all economic transactions between domestic and foreign residents over a stipulated period generally one year. The analysis of balance of payment is immensely useful for the policy makers and business communities. Moreover, it is an important instrument for maintaining external economic stability, A close understanding of dependence of international business upon balance of payments is necessary for successful strategy of international business. The balance of payment is broader than the balance of trade for it includes not only visible items but also invisible items. Hence, the balance of payments presents a better picture of a country’s economic and financial transactions
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