Question

How is balance of payment 'deficit' measured? Explain.

Answer 1

A deficit in the balance of payments is when receipts of the country coming from autonomous transactions are less than the corresponding payments to the rest of the world during the period of an accounting year. It shows net liabilities towards the rest of the world.

There are certainly positive and negative impacts of the deficit in the balance of payment. When deficit occurs on account of capital import which is required for advancing the process of growth and development, it is a positive impact of the deficit in the balance of payment. The negative impact is that it shows Indian liabilities to the rest of the world. These liabilities strain the GDP by making payments to the rest of the world.