Balance of Trade and Balance of Payments

Balance of Trade (BoT) is the difference between the value of a country's visible exports ($X$) and visible imports ($M$) of goods over a period (usually a year):

• If $X > M$: trade surplus (favourable balance of trade).
• If $X < M$: trade deficit (unfavourable balance of trade) — the more common position for India in recent decades, mainly on account of the large crude oil and gold import bill.
• If $X = M$: balanced trade.

Balance of Payments (BoP) is a much wider, systematic record of all economic transactions between residents of a country and the rest of the world over a period — visible trade, invisible trade (services, income, transfers), and capital flows (investment, loans, banking transactions) are all included. BoP has two main accounts:

Key differences between BoT and BoP: