Introduction:

The balance of payment of a country is a systematic record of its receipts and payments in international transaction in a given year. Each transaction is entered on the credit and debit side of the balance sheet. The credit sides are visible and invisible exports, transfer receipts in the form of gift received from foreigners, borrowings from abroad and investment by foreigners in the country and official sale of reserve assets including gold to foreign countries and international institutions. The methods of correction of dis-equilibrium in B.O.P. are.

Methods of correction:

1. Exchange Rate Adjustments:

Exchange rate adjustment can be done through either Lowering the value of a country’s currency to make exports cheaper and imports more expensive, boosting export competitiveness and reducing import demand or Increasing the value of the currency to make exports more expensive and imports cheaper, aimed at reducing export competitiveness and increasing import demand.

2. Monetary Policy:

R.B.I. can raise interest rates to attract foreign capital, thereby improving the financial account. On the other hand lowering interest rates can reduce capital inflow and balance the payments. Regulating the money supply to influence inflation and exchange rates, and the trade balance.

3. Fiscal Policy:

Reduction in the government expenditure can decrease import demand, while increasing expenditure can boost economic activity and exports. Fiscal policy or taxes can influence disposable income and consumption, and also affecting imports and the trade balance.

4. Trade Policies:

Imposing tariffs and quotas to restrict imports and protect domestic industries, and also improvs the trade balance. Provision of subsidies to domestic industries and to make their products more competitive in international markets.

5. Investment Policies:

Investing in infrastructure, education, and technology to enhance the productivity and competitiveness of domestic industries. Implementation of measures to lower the production costs, making exports more competitive is also a measure for disequilibrium in B.P.O.

6. Foreign Exchange Controls:

Restriction on the capital outflows is important to prevent a depletion of foreign reserves. Direct intervention in the foreign exchange market to stabilize the currency can be more effective to correct disequilibrium in B.O.P.

7. International Borrowing:

Securing loans from international organizations (e.g., IMF, World Bank) to finance deficits. Receiving financial aid from other countries or international organizations.

8. Structural Adjustments:

• Economic Reforms: Implementing broad economic reforms to improve the overall economic environment and address fundamental issues causing the imbalance.
• Diversification: Diversifying the economy to reduce dependency on a narrow range of exports and stabilize the balance of payments.

9. Export Promotion:

Offering incentives to exporters, such as tax breaks, to boost export volumes is also an effective measure to set right the disequilibrium. Negotiating trade agreements to open new markets and reduce barriers to exports can be done to correct our disequilibrium.

10. Import Restriction:

There are strict import controls in the country to prevent and even ban on the imports of non essential items. Efforts are also being made at import substitution, and encouraging the development of domestic industries to produce goods that are currently imported, thereby reducing import dependence.

Conclusion:

Each of these methods has its own advantages and potential drawbacks, and the choice of method(s) depends on the specific circumstances and economic conditions of the country experiencing the disequilibrium.

also read: explain the causes of disequilibrium in balance of payments.