(a) Explain the likely impacts of the `Make in India' policy initiated by Government of India on the Balance of Payments (BoP) of India (assuming all other factors constant). (b) State the meaning of Balance of Payment (BoP) surplus and deficit.

Question

Accepted Answer

(a) **Impact of 'Make in India' on Balance of Payments:**

- **Increase in FDI:** MNCs shifting production to India brings foreign direct investment, increasing capital account inflows
- **Boost to Exports:** Increased domestic production can lead to higher exports, improving current account
- **Technology Transfer:** FDI brings technology and skills, enhancing export competitiveness
- **Employment Generation:** Creates jobs, increasing domestic income and potentially imports
- **Overall:** Improves BOP position through both current and capital account improvements

(b) **Accommodating Items:** These are transactions undertaken to cover deficit or surplus in autonomous transactions. They are compensating capital transactions meant to correct disequilibrium in BOP. They occur only on capital account and are known as 'below the line items'.

*Example:* Drawing foreign exchange reserves to finance current account deficit.