Sen said that under normal circumstances, rupee depreciation is good for the current account deficit because it leads to higher exports. “If the other currency has lost more than the rupee, the net effect could be negative.” India’s balance of payments In exports that happen via the dollar, “since rupee is not the only currency weakening against the dollar, the net effect will depend on how much has the other currency lost to the dollar”, Sen said. For one, in bilateral trade, the rupee has become stronger than many currencies. On the exports front, however, Sen noted that it is less straightforward. Foreign portfolio investors (FPI) pulled out $16.8 billion.Īt the end of the year, the BoP was at a surplus of $47.5 billion - that is, the net effect of all transactions on current and capital accounts was that $47.5 billion came into India. On the capital account, however, there was a surplus of $86.3 billion, thanks largely to foreign direct investments (FDI) providing more dollars in the shape of loans etc. As a result, the current account, which was in surplus in the previous year, went into a deficit of $38.8 billion.

But the Invisibles account showed a surplus of $150.7 billion. That is, the country imported more goods (such as crude oil) than it exported, and the net effect was negative. In 2021-22, India had a trade deficit of $189.5 billion. India’s vulnerability on the external debt front The important thing about the BoP is that it always “balances”. If an American invests in Indian stock markets, dollars will come into the BoP table and it will be accounted for under FPI within the capital account. So if an Indian buys an American car, dollars will flow out of BoP, and it will be accounted for in the trade account within the current account. The current account is further divided into the trade account (for export and import of goods) and the invisibles account (for export and import of services). The BoP has two broad subheads (also called “accounts”) - current and capital - to slot different types of transactions. If a transaction leads to dollars coming into India, it is shown with a positive sign if a transaction means dollars leaving India, it is shown with a minus sign. The BoP is essentially a ledger of all monetary transactions between Indians and foreigners. To understand movements on these variables, one must understand India’s Balance of Payment (BoP) statement.

Dollar to rupee exchange rate