Discuss the different components on the credit side and on the debit side of balance of payments of a country.
A country’s Balance of Payments Account is a mirror of the country’s economic condition, just like the balance sheet of any company.
Components of Balance of Payments Account:
Balance of Payment Account of Country Y (As on 31.3.22)
| Receipts (Credit) | Rs. | Payments (Debit) | Rs. |
|---|---|---|---|
| (a) Visible exports | 450 | (e) visible imports | 700 |
| (b) Invisible exports | 150 | (f) Invisible imports | 100 |
| (c) Unilateral receipts | 200 | (g) Unilateral payments | 110 |
| (d) Capital receipts | 200 | (h) Capital payments | 90 |
| Total Reciepts | 1,000 | Total Payments | 1,000 |
Following are the receipts included as balance of payment:
(a) Visible exports:
Goods that are physically going out of the country, visible to all, are called visible exports. For example: tea, coffee, jute products, iron-steel etc. from India.
(b) Invisible exports:
Invisible exports or invisible flows are not physically going out of the country or visible to everyone. These are related to services. For example – exports of tourism services, banking services, insurance services; receipts of interest, rent etc.
(c) Unilateral receipts:
Receipts that do not have to be repaid or for which the country does not have to pay anything in return are called unilateral receipts. For example: receipt of donation, gift, war indemnity etc.
(d) Capital receipts:
Borrowing from foreigners, sale of property abroad, Receipt of repayment of old debts from foreigners etc. include in capital receipts.
On the other hand, payments included in balance of payments are as follows:
(e) Visible imports:
Goods that enter the country physically, which is visible to all, are called visible imports. For example: import of diesel, petrol, equipment, etc. to India.
(f) Invisible imports:
The flows of services which are invisible or not physically entering the country or visible to the public are called invisible imports. For example: import of banking services, insurance services etc; payment of rent, interest etc.
(g) Unilateral payments:
Any donation or gift sent abroad due to natural calamities, war etc. is called unilateral payment. The aid that India sent to Indians in Iraq during the Gulf war is an example of unilateral payments.
(h) Capital payments:
Loans to foreigners, Purchase of property from foreigners, repayment of old debts to foreigners etc. include capital payments.
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