Reasons of adverse balance of payment of India.

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Discuss the reasons of adverse balance of payment of India.

Reasons of Adverse Balance of Payment of India Following are the causes of balance of payments –

1. Development Disequilibrium – India mostly takes up the developmental activities like establishment of industries etc. These activities increase import of capital goods. It leads to deficit in the balance of payments.

2. Fluctuations in Imports and Exports – The boom in the business increases consumption, demand and prices. Therefore India imports more consumer goods to meet the demand. High aggregate demand and high domestic price result in increase in imports. This situation leads the balance of payment.

3. Structural Changes – Structural changes contain shift from agricultural sector to service sector, development of alternative sources of supply, exhaustion of productive resources etc. These structural changes enhance the import of capital goods and consumer goods. It results in balance of payment deficit.

4. Other Causes – In addition to above following are also causes of disequilibrium in balance of payment –

(i) Slow growth in exports,
(ii) Weak term of sales,
(iii) Lack of proper use of forex,
(v) Increasing burden of payment of foreign debts
(v) Rising inflation,
(vi) Increasing protectionism in developed countries,
(vii) Lack of import substitution,
(viii) Increase in defence expenses,
(ix) High cost of democracy system,
(x) Increase in social services.

Important Link

• Kinds of Disequilibrium in Balance of payments (BOP)
• Measures Adopted by Government of India to Correct its Adverse BOP
• Balance of Payments: Meaning, Definitions, Characteristics and Uses
• Different Terms of Payment used in Foreign Trade
• Characteristics of Export Documents
• Letter of Credit: Meaning, Importance and Required Document
• Documents used in export trade its types and contents
• Restrictions on deposits to foreign currency accounts
• What is the obligation to submit foreign currency?
• Foreign Exchange: Concept, Example and Needs

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