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SubjectsEconomyFiscal & External SectorChapter 5 — External Sector5.1 Balance of Payments

Topic 5.1 · Economy · External Sector

Balance of Payments

Balance of Payments is studied as part of "External Sector" (Fiscal & External Sector) in Economy. The external sector — balance of payments, foreign trade, exchange rates and global institutions — links the Indian economy to the world.

In the examination context, balance of payments carries conceptual questions that test both factual recall and analytical understanding. Revise this topic in sequence with the rest of the chapter so that chronological and thematic links are clear.

Important Facts

BoP
Records all transactions with the rest of the world
Current account
Trade in goods and services + transfers
FDI
Foreign direct investment — long-term
Floating rate
Market-determined exchange rate

Key Points

  • BoP — Records all transactions with the rest of the world
  • Current account — Trade in goods and services + transfers
  • FDI — Foreign direct investment — long-term
  • Floating rate — Market-determined exchange rate

Important Names

John Maynard KeynesB.K. Nehru

Important Dates

1991Balance of payments crisis → liberalisation
1993Market-based exchange rate adopted
Exam-Oriented Notes
  • »FDI is non-debt creating; FPI is portfolio (debt/equity) investment. The 1991 crisis triggered LPG reforms.

Related topics

5.2 Foreign Trade & EXIM Policy5.3 Exchange Rate Systems5.4 FDI & FPI5.5 IMF, World Bank & WTO
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