Question

Balance of payments

If India’s current account balance is -57336 and the sum of its capital and financial account balances is 48990, what other entry must appear in its balance of payments, and what does that entry reflect?

Answer 1

Balance of Payment (BOP) = Balance of Current Account + Balance of Capital account + Balance of Financial Account

We have given
Balance of Current Account = -57336
Balance of Capital Account + Balance of Financial Account = 48990

Thus
Balance of Payment (BOP) = Balance of Current Account + [ Balance of Capital account + Balance of Financial Account ]
Balance of Payment (BOP) = -57336 + 48990
Balance of Payment (BOP) = -57336 + 48990
Balance of Payment (BOP) = -8346

A negative balance of payment value indicates that the economy as a whole is in deficit.

Balance of payments indicates that the country has enough funds to take care of its imports.

A deficit means that country is importing more than it is exporting. Thus eventually if the surplus is not achieved, the country would have to find other ways such as borrowing from other countries etc. to pay off the additional imports and hence it would become debt laden. In the long term this is not good for the country as it might lead to very high debt which may accumulate over a period a time. The effect of this borrowing is not seen so much in the short term.
Thus the country should strive to outdo imports by its exports and become a Balance of Payments surplus economy.