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The balance of payments is a network of recording international transactions. Credit is added to the balance of payments whenever funds go into a country, and a deduction is made when funds leave a country.
Balance of Payments can be divided into the current account and the capital account. When a deal develops a certain liability, that gets included in the capital account. But if a deal doesn’t create a liability, it goes to the current account.
Structure of Balance of Payments
The structure of Balance of payments consists of a current account and a capital account.
Current Account: It refers to the statement of actual receipts and payments relating to export and import of goods and services and unilateral transfers during a year.
Export; which is recorded as positive items.
Import; which is recorded as negative items.
Receipts or unilateral transfers are positive items.
Payments or unilateral transfers are negative items.
Capital Account: It records capital transactions such as loans and investments between one country and the rest of the world.
Its components include;
Foreign investment: FDI and FII
Borrowings: It refers to commercial borrowings by the government or private sector.
Official international reserves: It includes changes in gold and foreign exchange reserves with the central bank.
International Trade: An Overview
The emergence of the global economy was aided by international trade. Global events influence and are influenced by supply and demand, and consequently prices, in the global economy.
Political change in Asia, for example, could lead to a rise in labour costs. This could raise the manufacturing expenses for an American shoe firm operating in Malaysia, resulting in a rise in the price charged for a pair of sneakers purchased at a local mall by an American consumer.
Imports and Exports are two different things.
An export is a product that is sold to the global market, whereas an import is a product that is purchased from the global market. The current account part of a country’s balance of payments accounts for imports and exports.
Global commerce allows wealthier countries to make better use of their resources, such as labour, technology, and capital. Land, labour, capital, technology, and other natural resources are distributed differently throughout countries.
This enables certain countries to produce the same commodity more efficiently, i.e., faster and for less money.
As a result, they may be able to sell it at a lower price than other countries. If a country is unable to manufacture an item efficiently, it can obtain it via trading with another country.
In international trade, this is referred to as specialisation.
For example, historically, both England and Portugal have gained from specialising and trading in accordance with their comparative advantages.
Portugal has many vineyards and can produce wine at a low cost, whereas England’s meadows are abundant with sheep, allowing it to create fabric at a lower cost.
Each country would eventually grasp these truths and abandon efforts to produce the commodity that was more expensive to produce locally in favour of trade.
Indeed, England stopped making wine and Portugal stopped making cloth over time. Both countries realised that it was in their best interests to stop producing these things at home and instead trade with one another to obtain them.
The mineral water market in India
As per the records for 2022, the revenue in the mineral water market amounts to $454,819m which is predicted to grow at a rate of 7.83% annually. Globally, the United States generates the most revenue.
In India, the mineral water market has shown remarkable growth due to the unavailability of clean drinking water, which has led to an increase in health concerns. By 2023, the mineral water market is expected to reach INR ~403.06 and ~35.53 Bn litres. The increased sales of the mineral water market of India are due to its partnership with airlines, movie theatres and various hotels and restaurants. The main market drivers in this field are the increased awareness among people for clean drinking water and the tourists who prefer mineral water above tap water. These factors have resulted in a boost in the sale of mineral water.
The major mineral water market challenges for India could be the fake branding of the mineral water bottles and the percentage of the population residing in India’s rural areas.
Conclusion
Balance of payments plays an important role in developing nationwide and global economic policy. There are specific aspects of the balance of payments, such as payment inequalities and foreign direct investment, which a nation’s policymakers must address.
Economic policies are often targeted at explicit purposes that influence the balance of payments. For example, one country might acquire strategies designed to attract foreign investment in particular, while another might seek to maintain its currency at a low level to enable exports. The impact of these strategies is eventually apprehended in the balance of payments data.
