NOTES

Balance of payment situation during the post reform period was quiet satisfactory the deficit in 1992-93 was 1.7 % of GDP which has declined to 0.5 % of GDP in the year 2000-01. The satisfactory performance of BOP can be attributed to the following factors:

1)    High earnings from invisible A/c: - Invisible at the beginning of the post reform period were contributing to  $ –242 million, but with the improvement of service sector in the Indian economy. The earnings from invisible account became positive and were $ 53,405 million in 2006-2007. The rise in invisible has been mainly due to inflow of private transfer receipts on the other hand miscellaneous factors have also shown remarkable increase in invisible account.

The revolution in information technology in nineties had made Indian economy to expand the boundaries of service sector in the world economy. The export of software services grew at an annual rate of 52.5 % during 1999-2000. This growth rate has further increased to 57 % in 2000-01.

2)    Rise in Non-resident deposits: - There has been considerable increase in NRI deposits which was responsible for satisfactory performance of BOP position Government of India offered various incentives to increase foreign exchange reserves in the Indian economy. NRI deposits were $ 1204/- million in 1993-94 and has increased to $ 2317/- million in 2000-01.

3)    Increase in Foreign investment: - Another factor responsible for improvement in BOP position was increase in the flow of foreign investment in post reform period. Government of India has offered various concessions and incentives to the foreigners to encourage flow of foreign investment in to the country. This resulted into increase in the foreign investment to $ 4325 million in1993-94 to $ 4558/- million in the year 2000-01.

4)    Rise in External Commercial Borrowings: - External Commercial Borrowings were extensively used by the government of India to finance the current account deficits. The external commercial borrowings in 1991 were $ 10,209 million, which has increased to $ 22,585 million in the year 2003.

5)    Favourable trade policy: - Government of India has announced various policies in the post reform period in order to reduce the deficits in the Indian BOP situation. The policy of 1997-2002 was providing various financial and non-financial incentives to boost the exports, which resulted in reduction in the trade deficits.