Contents:
1. More demand of consumption goods
2. Price Disequilibrium
3. Foreign Competition
4. Less growth in exports
5. Population explosion
1. Promotion of Exports
2. Increase in Production
3. Trade Agreement
4. Encouragement of foreign investment
5. Attraction to foreign tourists
6. Devaluation of Indian Currency
Balance of Payment
Introduction:
It is a systematic pattern to record all trade and capital inflows and outflows from a country in the balance of payment statement. Thus, the balance of payment (BOP) is a systematic record of a country’s all economic transactions with the rest of the world during a given period of time.
Definition of balance of Payment:
“The balance of payment of a country is a payment of a country is a systematic record of all economic transactions completed between its resident and the resident of the world during a given period of time, usually a year.”
Balance of Payment = Exported visible and invisible items - Imported visible and invisible items
Causes of Unfavourable Balance of Payment:
1. More demand of consumption goods:
When demand for consumption goods increases like when population increases or production decreases, the balance of payment becomes disequilibrium.
2. Price Disequilibrium:
Due to inflation and backward technology domestic prices have increased more than the increase in prices of foreign goods. This has led to an increase in import and decrease in exports. So, this causes price disequilibrium.
3. Foreign Competition:
When countries shift from the goods imported from one country to different countries due different reasons like price, quality etc. Then also exports of one country decrease due to foreign competition.
4. Less growth in exports:
Despite various export promotion schemes, our exports are still less than our imports. Moreover, the growth rate of exports is less than the growth rate of imports.
5. Population explosion:
Rapid growth of population in countries like India increases imports and decreases the capacity for exports. Moreover, whatever is produced extra for export purposes, the same is consumed within the country. This leads to an adverse BOP position.
Measures to correct disequilibrium in the Balance of Payments:
1. Promotion of Exports:
Promotion of export is the best measure to correct an adverse balance of payments. For this all taxes on export goods be withdrawn, export industries should be provided new materials and transport facilities at reduced prices, so that prices of these goods remain low.
2. Increase in Production:
Increase in production will lead to excess of final goods so a country can export the excess of final goods to different countries.
3. Trade Agreement:
More trade agreements should be done with foreign countries to promote our foreign trade and exports.
4. Encouragement of foreign investment:
Foreign industries and MNCs are encouraged to invest their capital in India. Special facilities are provided to attract foreign capital. It leads to an inflow of foreign capital.
5. Attraction to foreign tourists:
The government should spend a lot of money to develop picnic spots and resorts in different parts of the country. A large amount of foreign exchange can be earned from foreign tourists.
6. Devaluation of Indian Currency:
Lowering the value of the domestic currency in terms of foreign currency in terms of foreign currency in terms of foreign currencies is called devolution. The exchange rate of the currency may be reduced by the government. Foreign goods will become costly and local goods will become cheap. Imports will be cut down and exports will be pushed up.