Balance of Payments (BOP) – is simply put – the summary of all the ‘economic’ transactions India has had with the rest of the world (ROW) in a financial year.
Balance of Trade (BOT) – is just the summary or the balancing of the total exports and the total imports of India in a financial year.
BOT = Total Exports of visible items – Total Import of visible items
BOP summarizes all the inter-country transactions (all international transactions) and is a wider term – which includes BOT. So, BOT forms a part of BOP. Whereas BOT is a narrower term, and includes only the summary of export and import of visible items.
BOP is a wider term and includes:
- Visible Items – are those items which are visible/ touchable/ tangible/physical, i.e., they can be seen and measured and touched. BOP includes the export and import of such physical goods.
- Invisible Items – are those which cannot be seen (and hence invisible) or touched, but can be felt, like services. The import and export of services in included in BOP – services like banking, consultancy services of IT, legal services, architecture, management, CA, insurance and logistics services.
- Unilateral Transfers – as the name suggests are transactions which are one way.
- Capital Transfers – are transfer of title or ownership of capital assets across borders. It includes purchase or sale of capital assets like land, building, plant and machinery etc. – but across borders.
BOT includes only the visible items. So, it is a narrower term and is included in the broader term BOP.