The risks to our BoP have increased both in the global and domestic context: first, following the global financial crisis trade volumes have slumped and capital flows have become volatile; second, slowing domestic growth coupled with a large fiscal deficit alongside a high CAD poses twin deficit risks.
In this context, I propose to capture the evolution of India’s BoP in the historical context and trace how did we respond to risks to external stability from time to time? Let me start from the basics. What is BoP? It is our transaction account with the rest of the world.