Balance of Payments Every country imports the goods of its need from other countries and exports its surplus items to other countries of the world. If the value of total imports is subtracted from the total export value of a country in a given period, then the difference obtained is called trade balance. In this way, there is a detailed description of imports and exports under the balance of trade, which explains the difference between imports and exports.
According to Benham, “The balance of trade is the relationship between the value of exports and the value of imports of a country in a given period of time.”
The trade balance of a country can be either favorable or unfavourable. When a country’s exports are more than its imports, it is said to have favorable trade balance and when imports are more than exports, it is called unfavorable trade balance.
Impact of Adverse Trade Equity
Exchange rate being in opposition to the country
Due to unfavorable trade balance, the exchange rate of the country’s currency becomes weak. Due to more imports, the demand for foreign exchange increases and due to less exports, the demand for the country’s currency decreases, thus the supply of the country’s money increases and the demand decreases, resulting in the exchange rate of the country’s currency. becomes in opposition.
Decrease in foreign exchange funds- In the case of unfavorable trade balance, the need for foreign exchange becomes more due to imports being more than exports. The additional payments have to be paid from the already accumulated foreign exchange funds, which reduces the foreign exchange reserves.
Also read Collection of Data
Obstacles in the path of economic development
For economic development, the country needs capital goods, technology, machines and machines etc. But due to unfavorable trade balance, the foreign exchange reserves are reduced and the exchange rate also becomes in opposition to the country. As a result, the necessary resources for economic development are not available and the path of economic development starts getting blocked.
Increase in debt burden
Due to unfavorable balance of payment, the exchange rate becomes in opposition to the country, due to which the country needs more funds to pay off the foreign debt. As a result, there is an increase in the debt burden on the country.
Decrease in economic reputation
Due to unfavorable trade balance, the economic reputation of the country decreases. It is a symbol of the weak economy of the country, under which the economic condition of the country is undervalued by the credit institutions. This has a very bad effect on the economy of the country.
Balance of Payments – Balance of Payments is a description of the monetary transactions of a country with other countries of the world in a given period. In this, all visible and invisible items of import export are included, the visible items are those which are not recorded in the register kept at the port, whereas all types of services like banks, insurance and shipping services, tourist services, services of experts are included in the invisible items. etc. and exchange of capital, receipt and payment of interest, movement of gold etc. are included.
Differences in Trade Equity and Payment Equity
|basis of difference||trade balance||balance of payments|
|1. Description||In this, the detail details of imports and exports are kept.||This includes not only imports-exports but also services, capital gold etc.|
|2. Area||The area of business balance is narrowed. In fact, it is a part of the balance of payments.||The area of balance of payments is much wider.|
|3. Nature||The trade balance can be favorable or counter-total at any time.||The balance of payments is always in equilibrium.|
|4. Visible and invisible matter||In this, only the import-export of visible items is included.||It includes both visible and invisible items.|
|5. Significance||Its importance is comparatively less. If the trade balance of a country is not in its question, then it is not a matter of much concern.||It is comparatively more important. If the balance of payments is not in the question of the country, then it is a symbol of the adverse economic condition of the country.|
|6. Effect on Exchange Rate||It does not affect the exchange rate much.||It affects the exchange rate more.|
Measures to solve the problem of payment balance
Exchange control is a set of actions that are taken to maintain the exchange rate of currency at a specified level, exchange control is that government regulation that does not allow economic forces to work easily in the foreign exchange market. To correct the unfavorable balance of payments, the policy of exchange control is considered to be more definite and effective. When there is a crisis of foreign exchange in a country, the government takes over all the transactions of foreign exchange regularly and allows only authorized traders to trade a limited amount of currency.
Promotion of exports
The government should encourage exports so that exports can increase. For this (i) export tax should be reduced. Or export exemption should be given, (ii) the country’s industries should be given financial assistance. (iii) Promotion and advertisement should be done for the goods in foreign countries.
Reduction in imports
India should reduce its imports. For this (i) import taxes should be increased so that imported goods become expensive and their demand is reduced, (ii) also, full cooperation of license and quota system should be taken.
Control of Inflation
Due to inflation in India, the prices of commodities are increasing continuously. Due to rising prices, the demand for Indian goods decreases abroad; , As a result, the balance of payments becomes unfavorable when its exports decrease. Therefore, the control of inflation in the country should be stopped by increasing the prices so that due to the increase in the demand of Indian goods abroad at low prices, exports increase and the balance of payment adversely improves.
Attracting foreign capital
The government of the country can attract foreign capital by creating a proper political and economic environment. Increase in the rate of interest, concessions in exchange restrictions, exemptions in taxes, etc. When foreign capital starts coming into the country, then the unfavorable balance of payments starts improving.
Development of tourism industry
Various schemes can be made by any country for the purpose of attracting foreign tourists. Due to increase in foreign exchange funds, the unfavorable balance of payments can be reduced.