Explain the meaning and significance of deficit in Balance of Payments

cbse-class-12

#1

Deficit in BoP refers to a situation when receipts of the country arising out of autonomous transactions are less than the corresponding payments to the rest of the world during the period of an accounting year. It highlights our net liabilities towards rest of the world.
Significance of deficit in BoP:
There is positive as well as negative significance of deficit in BoP. The positive significance is that, BoP deficit may be occurring on account of such capital imports which are essential to speed up the process of growth and development in the economy. The negative significance is that it highlights our liabilities to the rest of the world. Greater the liability, greater is the strain on our GDP by the way of payments to the rest of the world.