HPAS/Allied Mains 2022 Answer Writing Challenge Day 198: Model Answer

Question: What is the importance of Balance of Payment (BOP) for a country? (4 marks/ 60 words)

Answer:

A country’s BOP is vital for the following reasons:

• The BOP of a country reveals its financial and economic status.
• A BOP statement can be used to determine whether the country’s currency value is appreciating or depreciating.
• The BOP statement helps the government to decide on fiscal and trade policies.
• It provides important information to analyse and understand the economic dealings with other countries.

The importance of the Balance of Payments in India

• It helps the government analyse a particular industry’s export growth potential and formulate policies to sustain it.

• It gives the government a comprehensive perspective on a different range of import and export tariffs. The government then increases and decreases the tax to discourage imports and encourage export, individually, and self-sufficiency.

By studying its BOP statement and its components closely, one would be able to identify trends that may be beneficial or harmful to the county’s economy and, thus, then take appropriate measures.