India’s Balance of Payments situation in post reforms period

The “Balance of payment” is also known as the “Balance of international payments”. The statements deal with all types of transactions made with entities with any specifically given nation with either country of the world.

This is always expressed about a given point of time like yearly basis, half-yearly basis, or even every quarter. Thus, it encompasses all the individual entities, all types and kinds of companies and government bodies in India with companies, government bodies, entities with any other countries across the world. 

Thus the balance of payment includes a summation of all imports, exports, aids given and transfer payments made, and remittance done in any given financial year. 

India’s balance of payment situation in the post-reform period

The BoP in India has had a massive transformation. This is evident in the way of the sharp increase in the Balance of Payment in India. After the independence, the five-year plans were initiated all across India. This has a very favourable impact on the economy. 

The initial year saw a favourable BoP. There was a deficit only in the current account transactions. The number was approximately 42.3 crore. The foreign capital inflow was 13.63 crore and the foreign exchange reserve was 127 crore. 

However, at the beginning of the reform period, the BoP was near a collapsing point. The government initiated a lot of reforms to reinstall the situation.  The necessary adjustment with the International Monetary Fund (IMF) was initiated. Subsequently, the World Bank also provided loans to India, and this infused a lot of money into the economy. 

The mobilization of funds from various sources of NRIs was done by the introduction of the “India development bond”. This significant measure helped the Indian government to stabilize the BoP, and gradually the improvements were seen. The exports started overtaking the imports. This created a reserve of the necessary foreign exchanges in India. The export-import ratio also improved significantly. 

State industrial policy reforms

The various industrial policy reforms were initiated during 1991 through the industrial policy reforms. It aimed at enhancing the deregulation of industries and making the industrial sector more efficient with proper growth prospects. 

The licensing of industries was abolished and it was made limited to only 18 industries, there was the repeal of the “Monopolies and restrictive trade practices act”. The disinvestment was encouraged and the government gave up the “equity shareholding” also. The public sectors were granted more autonomy, they were encouraged to enter and initiate the MOUs. 

What are trade policy reforms?

The trade policy reforms aimed to develop an ambience of promotion of the exports. This also provided a reduction in the license control and a significant reduction in the regulatory requirement. 

The reform freed all the imports, the exports and the capital goods too. The restriction was limited to only 71 items. The restrictions of quantitative nature were removed, and the tariff structure was rationalized. The policy also introduced trading houses, to promote imports and exports. 

What are public sector reforms?

The reforms that aim at bringing overall changes in the public sector, its working and functioning under the national policy reforms of 1991 are defined as the public sector reforms. 

The reform of the public sector was felt due to various reasons in India.

The public sector faced a lack of competition. As a consequence, the profit margins earned by the same were very low.  The same sector experienced over employment as matter the functioning of the sector was also hampered. 

The public sector also experienced a lack of skilled and efficient manpower and the gestation period in the public sector was also long. The New economic policy of 1991(NEP 1991) aimed at transforming the public sector from the “grass root level”.  

The market-oriented practices were adopted, the disinvestment was done, the loss-making public sector (PSUs) were sold; the injection of the competitive practices was done to the sectors. The recalibration in the board of the PSUs was made to accommodate the necessary changes, MOUs were done in this direction and more autonomy was given to the sectors. 

Conclusion 

Balance of Payment (BoP) is a statement of all kinds of transactions present in the financial accounts, capital accounts and current accounts of all the individual entities, government bodies and companies of India with different individual entities, companies, and government bodies of other countries. 

It is always expressed in the terms of a given financial year. In India, the BoP helps the policymakers assess the effect of the fiscal and monetary policy on the economy of India. The study also deals with the industrial policy reforms that have strengthened the industrial base in India. 

The trade policy reforms and the public sector reforms are also included and elaborately discussed in this context.