(IGP) Special Current Affairs Material for IAS (Pre) 2013 - Topic: "Balance of Payments (Part -2)"

Chapter: Government Plans Programme & Policies

Topic: Balance of Payments (Part -2)

Investment Income transactions — are in the form of interest, dividend, profit and others for servicing of capital transactions. Investment income receipts comprise interest received on loans to non- residents, dividend/profit received by Indians on foreign investment, reinvested earnings of Indian FDI companies abroad, interest received on debentures, floating rate notes (FRNs), Commercial Papers (CPs), Fixed Deposits and funds held abroad by ADs out of foreign currency loans/export proceeds, payment of taxes by non-residents/refunds of taxes by foreign governments, interest/discount earnings of RBI investment etc. Investment income payments comprise payment of interest on non-resident deposits, payment of interest on loans from non-residents, payment of dividend/profit to nonresident share holders, reinvested earnings of the FDI companies, payment of interest on debentures, FRNs, CPs, fixed deposits Government securities, charges on Special Drawing Rights (SDRs) etc.

Foreign Investment — Data on investment abroad, hitherto reported, have been split into equity capital and portfolio investment since 2000-2001.

Foreign Direct Investment (FDI) — to and by India up to 1999-2000 comprise mainly equity capital. In line with international best practices, the coverage of FDI has been expanded since 2000-2001 to include, besides equity capital, reinvested earnings (retained earnings of FDI companies) and other direct capital (inter-corporate debt transactions between related entities).

Portfolio investment — mainly includes Flls investment, funds raised through GDRs/ADRs by Indian companies and through offshore funds.

External assistance by India — denotes aid extended by India to other foreign Governments under various agreements and repayment of such loans. External Assistance to India denotes multilateral and bilateral loans received under the agreements between Government of India and other Governments/International institutions and repayments of such loans by India, except loan repayment to erstwhile Rupee area countries that are covered under the Rupee Debt Service.

Commercial borrowings — cover all medium/long term loans. Commercial Borrowings by India denote loans extended by the Export Import Bank of India [EXIM Bank] to various countries and repayment of such loans.

A short term loan — denotes drawals in respect of loans, utilized and repayments with a maturity of less than one year.

Banking capital — comprises of three components : (a) foreign assets of Commercial Banks (ADs); (b) foreign liabilities of Commercial Banks (ADs); and (c) others. Foreign assets of Commercial Banks consist of (i) foreign currency holdings; and (ii) rupee overdrafts to non-resident banks. Foreign liabilities of commercial banks consists of (i) Non- resident deposits, which comprises receipt and redemption of various non-resident deposit schemes; and (ii) liabilities other than non- resident deposits which comprises rupee and foreign currency liabilities to nonresident banks and official and semi-official institutions. Others under banking capital include movement in balances of foreign central banks and international institutions like IBRD, IDA, ADB, IFC, IFAD etc. maintained with RBI as well as movement in balances held abroad by the embassies of Indian in London and Tokyo.

Non-resident deposits — Credits under this item include remittances received towards various non-resident deposit schemes which are continuing. Other schemes have been discontinued. A few of them are Non Resident (External) rupee Account (NR(E)RA) (Since February, 1970), Non-resident Non-repartriable Rupee Deposits (NRNRD) introduced in June, 1992.

Others — These include movement in balances of foreign central banks and international institutions like IBRD, IDA, ADB, IFC, IFAD etc. maintained with RBI as well as movement in balances held abroad by the Embassies of India in London and Tokyo. This also includes movements in technical credit granted to the erstwhile East European countries and their investments in Government Treasury Bills and deposits with the Government. Rupee Debt Service — Interest payments on and principal repayments on account of civilian and non-civilian debt in respect of Rupee Payment Area (RPA), are clubbed together and shown separately under this item. Other capital — comprises mainly the leads and lags in exports receipts (difference between the custom data and the banking channel data).This is a residual item and includes all capital transactions not included elsewhere. It particularly includes funds held abroad, advance receipts under deferred exports, India’s subscription to International institution, quota payments to IMF, delayed export receipts, remittances towards recouping the losses of branches/subsidiaries and the like.

Movement in Reserves — Movements in the reserves comprises changes in the foreign currency assets held by the RBI and SDR balances held by the Govt. of India. These are recorded after excluding changes on account of valuation. Valuation changes arise because foreign currency assets are expressed in US dollar terms and they include the effect of appreciation/ depreciation of non-US currencies (such as Euro, Sterling, and Yen) held in reserves.

Go Back To Main Page