BOP CRISIS

What is BOP?
The balance of payments of a country is a
systematic record of all economic
transactions between the residents of a
country and the rest of the world. It presents
a classified record of all receipts on account
of goods exported, services rendered and
capital received by residents and payments
made by them on account of goods
imported and services received and capital
transferred to non-residents or foreigners.

Components of BOP:
1. Current Account :
. The current account shows you the trade
position of the country.
. It shows you the merchandise imports and
exports, and then the invisibles part of it is also
trade but its that part of trade where there is
no physical good exported or imported.
. In Indias case, the transfers and grants part of
the invisibles is quite big relative to other
countries because of the large Indian diasporas.

2. Capital Account:
Where current account shows you trade, capital
account can be thought of as the investments
part of the international transactions.
This is further broken out into equity and debt
investment and the FII money and FDI money is
part of the equity investments while the
external commercial borrowings, money
deposited in banks by NRIs and trade credits
are debt investments.

What is BOP CRISIS?

A BOP crisis, also called acurrency crisis, is:
asituationinwhichacountryhasdevelopedan
unsustainablebalance of paymentsdeficit.
Thatis,abalanceofpayments
crisisoccurswhensomuchmoneyisflowingoutsidea
countrythatithasdifficultyborrowingtomakeupthed
ifference.
Abalance ofpaymentscrisisbecomesacutein

circumstanceslikeanexceptionallylargebudgetdefici
tthatlastsforanextendedperiodoftime
oradefaultoninterestpaymentsonpublicly-helddebt.

Factors and Causes

BOP Crisis in India

Reforms and Impact

Steps to be taken: