Table of Contents

Balance of Trade(BOT)

Introduction: Balance of Trade(BOT)

Balance of trade refers to the difference between the values of exports and imports of visible items (physical goods) of a country for a given period.

Balance of trade refers to the systematic record of visible items of a country in a financial year.
Or

In other words, it is the value of imports and exports of commodities.

* VISIBLE ITEMS*

Visible items refer to those items which are made of some matter or material and can be seen, touched and measured. for example- plant and machinery, rice, tea, Coffee, cloth etc.

* INVISIBLE ITEMS *

Invisible items of trade refer to all types of services like shipping, banking, insurance, travel, etc., which are given and received. These are called invisible items as they cannot be seen, felt, touched, or measured.

* CAPITAL TRANSFERS *

Capital transfers include the capital receipts & capital expenditure of a resident country.

* UNILATERAL TRANSFERS *

Unilateral transfers include gifts, personal remittances and other one way transactions.

Balance of Trade(BOT)

Government Budget

*BALANCE OF TRADE= VALUE OF EXPORTS OF GOODS – VALUE OF IMPORTS OF GOODS

*If the exports exceed imports, the BOT is said to be favourable, and unfavourable in case of vice versa.
Thus, Favourable BOT = Exports receipts > Import payments.
Unfavourable BOT = Exports payments > Import receipts.

*BOT is a simple statement related to the foreign trade of the country.

Balance of Trade(BOT)

BALANCE OF PAYMENTS

The term ‘Balance of Payments’ refers to the account of both visible items & invisible items while ‘Balance of Trade’ refers to the record of visible items only. BOT is only one of the components of BOP while the BOP is a wider concept & therefore offers a more comprehensive picture of economic transactions of a country with the rest of the world.

Moreover, the BOT may be balanced, deficit or surplus, while BOP as a whole always remain balanced. BOT is a simple statements related to the foreign trade of the country while BOP presents a classified record of all receipts on account of goods exported, services rendered and capital received, and payments made on account of goods imported, services rendered from, and capital transferred to abroad.

Difference between Balance ofTrade(BOT) and Balance of payments (BOP)

Basis	Balance of Trade	Balance of Payment
Meaning	Balance of Trade refers to the difference between the amount of import and export of the visible goods.	Balance of Payment of a country is a statement of accounts which shows all the economic transactions of a country with the rest of the world in a systematic manner, during a particular period of time.
Components	It includes the transactions relating to visible goods only.	It records all types of transactions I.e. Tangible, intangible goods, unilateral transfers and capital transfers and all transactions related to services.
Capital Transactions	It does not record any transaction relating to capital nature.	It records all transactions of capital as well as current nature.
Scope of Concept	BOT is a narrow concept.	BOP is a wider concept and Balance of Trade is a part of it.
Settlement	An unfavourable Balance of Trade can be settled out of favourable Balance of Payment	An unfavourable BOP cannot be settled out of favourable BOT