BALANCE OF PAYMENTS MANUAL FOR INDIA - Reserve …

1 BALANCE OF PAYMENTS MANUAL FOR INDIA September 2010 Reserve BANK OF INDIA MUMBAI i Contents BALANCE OF PAYMENTS MANUAL FOR Chapter I: Concepts and Definitions ..2 Concept of Residence ..2 Households ..3 Nature of Transactions .. 4 Accounting System .. 6 Double-entry book-keeping ..6 Basis of 7 Valuation ..8 Timing ..10 Timing Adjustments ..11 Applicability of IMF Guidelines ..12 Chapter II: External Accounts, SNA and their linkages ..13 International Investment Position ..14 BALANCE of Current Account ..15 Capital Account ..15 Financial Account ..15 Net Errors and Omissions ..16 linkages between BoP and IIP ..17 System of National Accounts (SNA) ..18 Harmonisation between the SNA and External Accounts ..19 Treatment of Transactions under Various Progress in Strengthening the linkages ..22 Chapter III: Merchandise Trade.

2 25 International Best Practices ..25 General Merchandise ..25 Re-Exports/Re-Imports ..28 Goods under Merchanting ..29 Non-monetary Gold ..30 Time of Valuation ..31 Indian Practice: Merchandise Data Sources .. 31 Directorate General of Commercial Intelligence and Statistics ..32 Banking Channel: RBI-FETERS ..37 Compilation and Presentation of Merchandise Trade in ii Reconciliation between Banking Channel and DGCI&S Data on Merchandise Trade ..40 CHAPTER IV: SERVICES, INCOME AND TRANSFERS ..45 Introduction ..45 Services Account .. 50 Transportation .. 53 Travel ..54 Telecommunications, Computer and Information Services ..56 Construction Services ..57 Insurance and Pension Services ..58 Financial Charges for the Use of Intellectual Property ..60 Other Business Services ..60 Personal, Cultural, and Recreational Services ..61 Government Goods and Services Not Included Elsewhere ( ).

3 62 Manufacturing Services on Physical Inputs Owned by Others ..63 Maintenance and Repair Services Income: Primary Income ..64 Transfers: Secondary Income ..66 Chapter V: Capital and Financial Account ..70 Capital Account .. 70 Financial Account .. 74 Direct Investment ..75 Portfolio Investment ..77 Financial Derivatives and Employee Stock Options ..79 Other Investments ..81 Reserve Assets .. 82 Capital Account of INDIA s BALANCE of Foreign Direct Investment in INDIA ..83 Foreign Direct Investment Abroad ..85 Portfolio Investment ..87 External Assistance ..90 External Commercial Borrowings ..90 Short-Term Loans ..92 Banking Rupee Debt Service ..95 Other 96 Chapter VI: Foreign Exchange Reserves ..98 Concept and Foreign Exchange Assets ..98 Monetary Gold ..99 Special Drawing Rights (SDRs) ..99 Reserve Position in the IMF ..100 Other Claims.

4 101 Treatment of Reserves in INDIA s BALANCE of PAYMENTS ..101 iii Attachment I: Constitution of the Group ..105 Attachment II: Minutes of Meetings ..106 Attachment III: Standard Format of BoP Attachment IV : New Purpose Codes For Reporting Forex Transactions (FETERS) ..121 Tables Table : Linkage between BALANCE of PAYMENTS and National Accounts 20 Table : Calendar for Release of Trade Data 34 Table : INDIA s status vis- -vis BPM5 and BPM 6 (Goods) 38 Table : Methodology for Compiling Merchandise Trade 39 Table : Status of Implementation of Key Recommendations on Reconciliation of Merchandise Trade Data 42 Table : Mapping of BoP Category of Services with Modes of Supply 45 Table : Mapping of Coverage of Services: BPM5, BPM6 and INDIA s BoP 48 Table : Standard Components of Capital and Financial Accounts of BALANCE of PAYMENTS 86 v List of Acronyms ADB - Asian Development Bank ADRs - American Depository Receipts ADs - Authorised Dealers BAL - Banking Assets & Liabilities BoP - BALANCE of PAYMENTS BOPSY- BALANCE of PAYMENTS Statistics Yearbook BPM6 - The sixth edition of the BALANCE of PAYMENTS and International Investment Position MANUAL CAAA - Controller of Aid Accounts and Audit CAB - Current Account BALANCE in the BoP CIF - Cost.

5 Insurance and Freight CPC - Central Product Classification CPs - Commercial Papers CS-DRMS - Commonwealth Secretariat Debt Recording and Management System DAD - Deposit Accounts Department DEA - Department of Economic Affairs DEIO - Department of External Investment and Operations DGCA - Directorate General of Civil Aviation DGCI&S - Directorate General of Commercial Intelligence and Statistics DSIM - Department of Statistics and Information Management DTRs - Daily Trade Returns EBOPS - Extended BALANCE of PAYMENTS Services ECBs - External Commercial Borrowings EDI - Electronic Data Interchange EDMU - External Debt Management Unit ESOPs - Employee Stock Options ETFs - Exchange Traded Funds FATS - Foreign Affiliates Statistics FCCBs - Foreign Currency Convertible Bonds FCEB - Foreign Currency Exchangeable Bonds FC-GPR - Foreign Collaboration General Permission Route FCNR(B) - Foreign Currency Non-Resident Accounts (Bank)

6 FDI - Foreign Direct Investment FED - Foreign Exchange Department FEDAI - Foreign Exchange Dealers Association of INDIA FEMA - Foreign Exchange Management Act FETERS - Foreign Exchange Transactions - Electronic Reporting System FISIM - Financial Intermediation Services Indirectly Measured FOB - Free On Board FRNs - Floating Rate Notes FTP - Financial Transaction Plan FTSI - Foreign Trade Statistics of INDIA GDP - Gross Domestic Product GDRs - Global Depository Receipts GNDY - Gross National Disposable Income GNIE - Government Not Included Elsewhere IBRD - International Bank for Reconstruction and Development IDA - International Development Association vi IDBMS - Integrated Database Management System IFAD - International Fund for Agricultural Development IFC - International Financial Corporation IIP - International Investment Position IMF - International Monetary Fund IMTS - International Merchandise Trade Statistics IOC - Indian Oil Corporation IPO - Initial Public Offerings ITC - International Trade Classification ITC-HS - International Trade Classification Harmonised System ITES-BPO - Information Technology Enabled Services - Business Process Outsourcing JVs - Joint Ventures LRN - Loan Registration Number MoC - Ministry of Commerce and Industry MSFTI - Monthly Statistics of Foreign Trade of INDIA MSITS - United Nations MANUAL on Statistics of International Trade in Services NASSCOM - National Association of Software and Services Companies NPNNA - Net Purchases of Non-Produced Non-Financial Assets NRD-CSR.

7 Non-Resident Deposits Comprehensive Single Returns NR(E)RA - Non-Resident (External) Rupee Accounts NRO - Non-Resident Ordinary Rupee Account OECD - Organisation of Economic Cooperation and Development ORFS - Online Returns Filing System RPA - Rupee Payment Area RTP - Reserve Tranche Position SDRs - Special Drawing Rights SEZs - Special Economic Zones SME - Small and Medium Enterprises SNA - System of National Accounts SWIFT - Society for Worldwide Interbank Financial Telecommunication TMG - Technical Monitoring Group on FDI Statistics 2003 TT - Telegraphic Transfer URS - Unclassified Receipts Survey WCO - World Customs Organization WOS - Wholly Owned Subsidiaries 2 Chapter I: Concepts and Definitions1 The sixth edition of the BALANCE of PAYMENTS and International Investment Position MANUAL (BPM6) of the International Monetary Fund (IMF) defines the BALANCE of PAYMENTS (BoP) as a statistical statement that summarises economic transactions between residents and non-residents during a specific time period.

8 The BoP, thus, includes all transactions showing: (a) transactions in goods, services and income between an economy and the rest of the world, (b) changes of ownership and other changes in that economy s monetary gold, special drawing rights (SDRs), and financial claims on and liabilities to the rest of the world, and (c) unrequited transfers. These transactions are categorised into (i) the current account including goods and services , the primary income , and the secondary income , (ii) the capital account , and (iii) the financial account . Concept of Residence The concept of residence is central to BoP compilation as it is a statistical statement showing all economic transactions between residents of one economy and those of the rest of the world (non-residents). In compiling BoP, it is, therefore, necessary to determine the economic entities which are residents of an economy and those which are non-residents.

9 For this purpose, the IMF MANUAL has prescribed certain criteria. Besides, some conventions have also evolved over the years. In BoP, the concept of residence is not based on nationality or legal status, but is based on the transactor s centre of economic interest. Therefore, it is necessary to recognise the economic territory of a country as the relevant geographical area to which the concept of residence is applied. The concept of economic territory is defined as the area under the effective economic control of a single government and, therefore, has both the dimensions of legal jurisdiction as well as physical location, which decides the association of entities with a particular economic territory. According to the BPM6, an institutional unit is resident in an economic territory when there exists, within the economic territory, some location, dwelling, place of This section comprises for the most part extracts from BPM5 and BPM6 published by the IMF.

10 3 production, or other premises on which or from which the unit engages and intends to continue engaging, either indefinitely or over a finite but long period of time, in economic activities and transactions on a significant scale . Actual or intended location for one year or more is used as an operational criterion for the purpose of determining residence. Based on the above definition, each institutional unit is a resident of one and only one economic territory determined by its centre of predominant economic interest. Households The residence of an individual is determined by that of the household of which he is a part and not by the place of his work. His status of residence continues till he acquires a centre of predominant economic interest abroad.