Readers Question: Suggest measures for improving balance of payments in India.
India’s balance of payments on current account worsened by $ 26 billion to $ 69.2 billion in the first six months (April-September) of 2008 fiscal year. This reflects a deterioration in the balance of trade with imports rising faster than exports.
Measures to improve balance of payments
Reduce domestic Consumption. Domestic consumption in India is proving resilient as rest of world slips into recession. This is causing imports to rise faster than exports. Reducing consumer spending would reduce imports, but, it may be deemed inappropriate as economic growth may be more important than balance of payments.
Encourage depreciation of Rupee. A depreciation in the Rupee would make Indian exports more competitive and imports more expensive. The problem is that with a global recession many other countries will be wanting to help their exporters through encouraging a weaker currency.
Structural improvements. long term supply side policies aimed at increasing the competitiveness of exports should help improve the balance of payments for India. However, they will take a long time to work.
source: of BOP stats for India
I do not quite agree with reduction of domestic consumption in order to normalize the BOP situation.The one measure that is missed out is investment for research whether in agriculture or industry or services which will accentuate a production based economy.The Supply side exceeding the demand side coupled with Quality will ensure a smooth export orientation with favorable currency situation.