| Balance Of Trade (BOt) | Balance Of Payment (BOP) |
|---|---|
| It records only merchandise (i.e., goods) transactions. | It records transactions relating to both goods and services. |
| It does not record transactions of capital nature | It records transactions of capital nature. |
| It is a part of current account of BOP. | It includes balance of trade, balance of services, balance of unilateral transfers and balance of capital transactions. |
| It may be favourable, unfavourable or in equilibrium. | It always remains in balance in the sense that receipt side is always made to be equal to payment side. |
| Defect in BOT cannot be met by BOP | Defect in BOP can be met through BOT. |
| It is not true indicator of economic relations or economic prosperity of a country. | It is true indicator of economic performance of an economy. |
A close look at the hypothetical data and further clarifies the distinction.
Balance of Trade = Rows (1) and (5)
= 550-800 = -250
Balance of Services = Rows (2) and (6)
= 150-50= 100
Balance of Unilateral Transfers = Rows (3) and (7)
= 100-80 = 20
Balance of Payment on Current A/c = -250 + 100 + 20 = -130
Balance of payment on Capital A/c = Rows (4) and (8)
= 200-70= 130 Balance of Payment = Rows (1 to 4) – (5 to 8)
= (550 + 150 + 100 + 200) – (800 + 50 + 80 + 70)
= 1000- 1000 = Zero
A deficit in balance of payment on current account (i.e., -130 crore) has been offset by surplus in BOP on capital account (i.e., + 130 crore). As a result, balance of payment is in equilibrium.
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