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    International Finanical Management

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    Nishtha Seth
    India's balance of payments was impacted by the global slowdown in recent years. While India recovered well from the global financial crisis due to fiscal stimulus and employment programs, GDP growth has slowed to 7% in 2011 due to high inflation, tight monetary policy, corruption scandals, and lack of infrastructure development. Declining foreign direct investment inflows and capital outflows have also put pressure on investment. However, India's merchandise exports, balance of payments surpluses, and foreign exchange reserves show it weathered the global recession well. Some experts argue this strength on external accounts was due to dollar depreciation and that discrepancies in balance of payments data call for caution in interpreting exports as a recovery sign.

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    International Finanical Management

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    Nishtha Seth
    23 views2 pages
    India's balance of payments was impacted by the global slowdown in recent years. While India recovered well from the global financial crisis due to fiscal stimulus and employment programs, GDP growth has slowed to 7% in 2011 due to high inflation, tight monetary policy, corruption scandals, and lack of infrastructure development. Declining foreign direct investment inflows and capital outflows have also put pressure on investment. However, India's merchandise exports, balance of payments surpluses, and foreign exchange reserves show it weathered the global recession well. Some experts argue this strength on external accounts was due to dollar depreciation and that discrepancies in balance of payments data call for caution in interpreting exports as a recovery sign.

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    India's balance of payments was impacted by the global slowdown in recent years. While India recovered well from the global financial crisis due to fiscal stimulus and employment programs, GDP growth has slowed to 7% in 2011 due to high inflation, tight monetary policy, corruption scandals, and lack of infrastructure development. Declining foreign direct investment inflows and capital outflows have also put pressure on investment. However, India's merchandise exports, balance of payments surpluses, and foreign exchange reserves show it weathered the global recession well. Some experts argue this strength on external accounts was due to dollar depreciation and that discrepancies in balance of payments data call for caution in interpreting exports as a recovery sign.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    23 views2 pages

    International Finanical Management

    Uploaded by

    Nishtha Seth
    India's balance of payments was impacted by the global slowdown in recent years. While India recovered well from the global financial crisis due to fiscal stimulus and employment programs, GDP growth has slowed to 7% in 2011 due to high inflation, tight monetary policy, corruption scandals, and lack of infrastructure development. Declining foreign direct investment inflows and capital outflows have also put pressure on investment. However, India's merchandise exports, balance of payments surpluses, and foreign exchange reserves show it weathered the global recession well. Some experts argue this strength on external accounts was due to dollar depreciation and that discrepancies in balance of payments data call for caution in interpreting exports as a recovery sign.

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    Unit 1 Assignment 1.

    Analyze the impact that the Global Slowdown has had on Indias BOP in the last few years. Has it been favorable? Ans.
    Indias record GDP growth throughout the last decade has lifted millions out of poverty and

    made the country a favored destination for foreign direct investment. However, the sharp downturn in Europe and the United States, coupled with significant domestic challenges, has slowed this trend and stands to disrupt future growth. The Indian economy recovered well after the global financial crisis due to a fiscal stimulus package and also many social programs like the Mahatma Gandhi National Rural Employment Guarantee Act. These activities created employment and demand that resulted in 9% GDP growth in 2010. However, GDP expansion for 2011 is now expected to be 7.0%, not the forecasted 8.5%. Several major factors are responsible for this slowdown, including the continuous rise of inflation, a tight monetary policy, a series of corruption scandals, policy paralysis on crucial reforms, and a lack of infrastructure development. Tight monetary policy for the thirteenth consecutive quarter has increased the cost of capital and affected credit flows to the commercial sector, slowing down overall investment activity. However, monetary policy has not been effective in containing Indias inflation, as this inflation is primarily a supply-side phenomenon due to a deficiency in infrastructure and bottlenecks in supply chains. Furthermore, a lack of investor confidence and positive business sentiment has led to declining FDI inflows over the last three quarters, adding pressure on new and ongoing investment. In addition, capital outflow, triggered by lackluster investor confidence and the European debt crisis, has resulted in a huge loss in listed shares market valuation on the Bombay Stock Exchange. All of this points to slower growth in the near future.

    India's merchandise export figures, balance of payments surpluses and foreign exchange reserves suggest that the country has weathered the global recession well. But the manner in which this strength on the external account has been garnered gives cause for some concern, argue C. P. Chandrasekhar and Jayati Ghosh. Following on figures pointing to a robust recovery in GDP growth, the evidence that India's month-on-month export growth has returned to positive territory after 13 months has generated much optimism. The value of aggregate merchandise exports during November 2009 stood at $13,199 million (Rs 61,462 crore), which was 18.2 per cent higher than its level in November 2008.

    Part of the increase was on account of dollar depreciation, with the rupee value of exports rising by a lower 12.4 per cent. But even this is significantly positive. However, there is a case for exercising caution when interpreting this evidence as a sign of recovery.

    2. Why do discrepancies arise in the balance of payment statement? Ans. 2 Discrepencies may arise in the balance of payments because there is no single source for BOP data and no way to ensure that data from different sources are fully consistent. Sources includes customs data, monetary a/c of banking system, external debt records, information provided by the enterprises, survey to estimate service transactions and foreign exchange records. Differences in record methods, for example, in the timing of transactions, in definitions of residence and ownership and in the exchange rate used to value transactions contribute to net errors and omissions. In addition, smuggling and other illegal or quasi- legal transactions may be unrecorded or misrecorded.

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