(a) Explain the likely impact of implementation of `Exports Promotion Scheme' of Government of India on the Balance of Payment (BoP) of the country. (Keeping other factors constant) (b) State the meaning of Trade Surplus.

Question

Accepted Answer

(a) **Impact of 'Exports Promotion Scheme' on BOP:**

- **Increase in Exports:** The scheme incentivizes exports, leading to higher export earnings
- **Improvement in Current Account:** Higher exports improve balance of trade and current account
- **Foreign Exchange Earnings:** Increases supply of foreign exchange
- **Employment Generation:** Export-oriented industries create jobs
- **Overall:** Improves BOP position, reduces current account deficit

(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:* Borrowing from IMF to finance BOP deficit.