Trends and Challenges of India’s Balance of Payments

Balance of Payments (BoP), being a record of the monetary transactions over a period with the rest of the world, reflects all payments and liabilities to foreigners and all payments and obligations received from foreigners. In this sense, the balance of payments is one of the major indicators of a country's status in international trade. BoP accounting serves to highlight a country's competitive strengths and weaknesses and helps in achieving balanced economic-growth. It can significantly affect the economic policies of a government and the economy itself. Therefore, every country strives to a have a favorable balance of payments and maintains its long run sustainability. India’s balance of payment position was quite unfavorable during the time of country’s entry into liberalized trade regime. Two decades of economic reforms and free trade opened several opportunities that, of course, reflected in the balance of payments performance of the country. This paper, therefore, attempts to evaluate the trends and emerging challenges of India’s Balance of Payments. The discussion is broadly classified into four parts viz. i) India’s balance of payments picture since 1991, ii) emerging role of invisibles and software services in balance of payments iii) unhealthy trends in FDI and iv) the vulnerability and challenges ahead.