‘Balance of Payments’? What is the status of India’s exports & imports? Here is an explainer. Trade betweendifferent cultures and societies has been a common feature across human civilization.In the modern-day context, international trade plays a key role in the economyof every country. Exporting goods & services that a country has surplus ofor is good at and importing those which it needs is a driver behind theinternational trade. Ascertainingthe value of exports & imports along with the difference between them, canoffer insights into the state of a country’s economy. Balance of Payments is a good measure whichindicates the surplus or deficit in a country’s trade with other nations. In this story,we explore the trends in India’s Balance of Payments (BOP) and its variouscomponents. Positive Capital Account covering up for the negative Current Account over the years Balance ofPayments (BoP) is a statement that has a record of all the monetarytransactions made between residents of a country with the rest of the worldduring a specific time period. BoP statementindicates whether a country has a surplus or deficit. BoP statementconsists of two components – Current Account and Capital Account. Currentaccount consists of all the inflow and outflow of goods and services of acountry. Capital account includes all the capital transactions made between thecountries. BoP follows thedouble entry system of accounting i.e. every debit has a corresponding credit.Ideally, when all the components are rightly accounted for, the net sum wouldbe ‘zero’. India has a deficit current account with the value of the importsexceeding the value of exports for most of the years. This negative currentaccount is covered up by the positive capital account (funded by foreignInvestments, loans etc.). However, as per the data provided by RBI, for 2018-19, the positive capital account could not cover up for the current account deficit and hence the overall deficit in BoP was to the tune of ₹ 202 billion. This amount is balanced out through foreign exchange reserves. Over the last decade (barring one year), the capital account was able to balance out the negative current account. The current account deficit for 2018-19 was ₹ 4,002 billion which is a substantial increase over 2017-18, when it was ₹ 3,141 billion. However, there is a fall in the value of capital account in 2018-19 (₹ 3,834 billion) compared to that of 2017-18 (₹ 5,891 billion) resulting in capital account not being able to cover up current account’s deficit leading to negative BoP. The last time there was a deficit in BoP was in 2011-12, when it was ₹ 685 billion. During that year, the current account deficit grew substantially, while the corresponding growth in capital account was not to that extent. In thesubsequent year, even though the current account deficit increased, thecorresponding capital account net value increased, there by covering thedeficit. Deficit in trading & income contributing towards Current account deficit The currentaccount takes into consideration the trade of both the tangible commodities/goodsand the services along with transfers and earnings. While the netvalue of the current account has been varying over the last decade, it has alwaysbeen in the negative. This implies that the value of imports exceeded that ofthe exports. A closer lookat current account numbers reveal that the net transfers have remained positiveover the years, while net income and net trade values were always in thenegative and thereby contributing to current account deficit. At the beginning of the decade i.e. 2009-10, the net value of transfer was ₹ 2483 billion which has gradually increased over the decade and for the year 2018-19 it is ₹ 4892 billion. However, thetrend is opposite for Net Income and Net Trade whose deficit has been on agradual increase. The head‘Income’ consists of two categories – Investment income & Compensation ofemployees. While ‘Compensation of Employees’ shows a surplus every year withthe Inwards being more than Outwards, the same isn’t the case for InvestmentIncome. The net value of Investment Income has a deficit every year over thepast decade. Deficit in Trade is due to imports exceeding the exports While the netdeficit under ‘Income’ is a contributor towards current income deficit, itsproportion is less. The major part of the current income deficit is due to thehuge trade deficit of India. Trade includes both tangible goods as well as services. A closer inspection shows that India’s trade in services has a surplus but the deficit in the trade of tangible goods is so huge that it results in a net negative for trade. Over the last decade, the surplus from trade of services has increased by 3.35 times.