Balance of Payments (BoP):
- The Balance of payments (BoP) record the transactions in goods, services and assets between residents of a country with the rest of the world.
- There are two main accounts in the BoP –
- the current account and
- the capital account.
Current Account:
- The current account records exports and imports in goods and services and transfer payments.
- Trade in services denoted as invisible trade (because they are not seen to cross national borders) includes both
- factor income (payment for inputs-investment income, that is, the interest, profits and dividends on our assets abroad minus the income foreigners earn on assets they own in India) and
- non-factor income (shipping, banking, insurance, tourism, software services, etc.).
- Transfer payments are receipts which the residents of a country receive ‘for free’, without having to make any present or future payments in return. They consist of remittances, gifts and grants. They could be official or private.
- The balance of exports and imports of goods is referred to as the trade balance.
- Adding trade in services and net transfers to the trade balance, we get the current account balance.
