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Balance of Payments in the Indian Economy
The balance of payments, as one of the most critical indicators showing the effectiveness of the foreign economic policy pursued, makes it possible to analyze the movement of funds for the formation and servicing of external debt, as well as to calculate the scale of the countrys external debt and relative indicators reflecting the degree of its external debt burden. A country can either be a net creditor to the rest of the world or a net debtor. In the case of a negative current account balance, the country. Imports foreign capital or spends its foreign exchange reserves to balance international payments the aggravated financial situation in India in the early 1990s. The problem of external debt by the end of the first decade of the XXI century is no longer relevant. The relative size of the debt has been reduced due to the skillful policy of the state in its settlement. However, the situation has been changed mainly by the COVID-19 pandemic.
The main characteristic of the ended fiscal year was the continued intense negative pressure of the COVID-19 pandemic on the countrys economy and population. India posted a current account deficit of $23 billion in the last quarter of 2021 (Reserve Bank of India). That means 2.7% of GDP, the biggest in two years, mainly due to the broader trade deficit (Behera & Yadav, 2019). The shortage of goods widened to $60.4 billion from $34.6 billion a year earlier (FDI inflow to India). The primary income gap also widened to $11.7 billion from $10.1 billion (India current account). Mainly due to the export of business services and computer equipment, the services surplus rose to $27.8 billion (Reserve Bank of India). The positive secondary income balance increased by $2 billion to $21.3 billion (Reserve Bank of India). Despite the ongoing pressure of the pandemic, a favorable external factor for India has a significant influx.
It should be noted that there was a significant increase in foreign investment in India during the difficult period of mass epidemic morbidity (A disrupted global recovery, 2022). It is an accurate recognition of the unique role of India in the world economy. These revenues in 2021, although slightly reduced compared to the previous year, amounted to a significant amount about $ 74 billion, according to the Ministry of Trade and Industry of India (FDI inflow to India). The growing number of positive assessments is of particular attention, including from authoritative international organizations and researchers enjoying substantial public influence.
They highly appreciate Indias immediate economic prospects, albeit in different quantitative variants. The upcoming growth of its economy in UN documents is indicated at 8.4% in the 2021/22 financial year (Magazine, 2022). In past years, in 2020-21, Indias net financial account was in the amount of approximately 33 million US dollars (Reserve Bank of India). According to analysts expectations and pre-calculation, Indias current account will be -20,400.00 million US dollars (India current account). Thus, Indias long-term current account will be around -7700.00 million USD in 2023 (Economic survey 2021-22). The indicator presented above, if implemented, would be significant for a country experiencing a recession under the pressure of COVID-19.
India has long been considered a heavily indebted borrowing country. The overall balance of India has been considered unfavorable for the past 4 years. Nevertheless, experts expect an improvement in the situation, thanks to an increase in exports. India has been an unformed debtor, as there was a trade deficit and an influx of direct investment into the country. The weight of the balance sheet indicator for services is gradually increasing every year. If this trend continues, it will push the balance of goods in weight and give the current account balance a positive value.
References
A disrupted global recovery. IMF Blog. (2022).
Behera, H. K., & Yadav, I. S. (2019). Explaining Indias current account deficit: A time series perspective. Journal of Asian Business and Economic Studies, 26(1), 117138.
Economic survey 2021-22. Press Information Bureau. (n.d.).
FDI inflow to India declines to $74.01 billion in 2021. The Economic Times. (n.d.).
India current account. Trading economics. (n.d.).
Magazine, A. (2022). GDP growth rate revised down to 8.9%, construction sector contracts. The Indian Express.
Reserve Bank of India. (n.d.). Web.
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