Introduction:

The government prepares a balance sheet of foreign payments called balance of payment consisting of credit and debit terms for every year. The balance of payment statement is essentially a double entry system of record of all economic transaction between the residence of a country and the rest of the world carried out in a specific period of time. Balance of payment is a wider term as compared to balance of trade. Balance of trade refers to the merchandise inputs and exports of goods.

The balance of payment statement is divided into two major accounts that is current account and capital account the current account of the balance of payment of India includes three items.

1. visible items relating to imports and exports of goods
2. invisible items that is receipts and payments for such services as shipping, banking insurance, travel ,royalties for foreign films, interest on foreign loan and foreign investment in India.
3. Unilateral transfer such as donations capital account in India’s classified into three main sections private capital, banking capital and official capital.

 Causes of adverse balance of payment:

1. Despite an encouraging rate of growth of export, the pressure on the balance has increased since we started with a large volume of import, even a smaller percentage growth of import was able to offset a larger growth rate of export and thus the deficit in balance of trade in absolute terms became higher.
2. A major factor responsible for larger inflow of major is due to the policy of input liberalization introduced by the government headed by Rajiv Gandhi
3. There has been increased in import intensity due to the pattern of industrial development promoted during the seventh plan which catered to the demand thrown up by the upper income groups of the population.
4. The relatives steep depreciation of the rupee in other countries currencies also lead to an increase in the value of imports.
5. Lastly the gulf war was responsible for the sharp declaration of inward remittance of Indians working in the gulf region.

Consequences or results:

1. India’s adverse balance of payment is increasing year after year and involves huge amount of money.
2. Due to adverse balance of payment the government is restricting the import which in term hinders the economic growth
3. As India has already used up all her preciously accumulated foreign cash reserve, India is force to borrow extensively from foreign countries.
4. The loans she had rise once upon a time from the international finance institutions such as World Bank, IMF are maturing and she has to return crores worth of foreign loans and interest on them

Methods to solve the problem of adverse balance payment:

The Government of India has taken a number of measure to tackled a problem of adverse balance of payment, the following important steps may be mentioned here.

• Export promotion measures: The Government of India has tried to increase India’s export both in traditional item and in new items the government has set up institutions to boost export such as export promotion consult for different commodities, trade development authority etc. various  tax incentives and other incentives are given for export promotion import of raw materials and capital goods are given high priority when they are used by export oriented industries this policy is known as export oriented import policy.
• Restrictions of import: There are strict import controls in the country to prevent and even a ban on the imports of non essential items or those goods which are being produced within the country. efforts are also being made at import substitution of special mention here are the tremendous efforts put up by ONGC and oil to export for and produce indigenous of crude to cut down our imports of crude.
• Foreign exchange control: The government has been enforcing Strict exchange controls even from the beginning of the second World war this controls were however, tightened since 1956-57 when India was faced with a serious foreign exchange crisis. While the government encourages the earning of foreign exchange. it puts all types of restriction on Indian nationals in spending foreign currencies.
• Encouragement to inward remittance of foreign currencies to India known as inward remittance started picking up in a significant manner only from the middle of 1970 when the government tightened its control on foreign exchange operators and smugglers. Inward remittance by Indian nationals working abroad were routed through official channels and thus become an important source of invisible for the country in the 1980 the Government of monitory and fiscal incentives to attract investment by NRI or Indian settled abroad.
• External borrowing: The Government of India has restored to massive borrowing from international monetary institutions to correct adverse balance of payment. It refers here to the massive borrowings of 5 billion dollars from the IMF and the loan of 3 million dollars from the Asian development Bank
• Export of gold: India exported gold when there was shortage of foreign exchange as an extraordinary method. Foreign countries accept precious metal to settle debts.
• Drawl on cash balances: India drew on her cash balances which it kept in foreign countries.

also read: explain the composition and directions of India’s exports.