Syllabus T. Y. B. A. Paper : IV advanced economic theory with effect from academic year 2010-11 in idol

 
2. Export promotion: 
Increasing export is one of the easiest way of improving 
BOP position. Various monetary, fiscal and economic measures 
should be adopted to improve the export transactions. Thus export 
promotion may help to come out deficit situation. The government 
may introduce a number of export promotion measures to 
encourage exporters to export more so as to earn valuable foreign 
exchange, which in turn would improve BOP situation. In India, the 
following are some of the export promotion measures: 
A) Duty Drawback 
B) Duty Entitlement Pass Book Scheme 
C) Export Promotion Capital Goods Scheme 
D) Excise exemption 
E) Fright concession or refund 
F) Octroi refund, wherever applicable 
G) Sales Tax/ VAT exemption 
H) Market Development Assistance 
 

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3. Import substitution: 
Only increase in export may not help out to improve BOP 
position, but imports should also be curtailed. For this it is very 
important to bring out substitutes against the imports. This 
guarantees removal of adverse BOP. 
 
Check your progress: 
1) Define Quota, Deflation, Export promotion. 
2) Bring out main difference between depreciation and Devaluation. 
 
 
 
 
 
 
 
 
 
 
 
 
11.5 BALANCE OF PAYMENT ADJUSTMENTS 
 
The adjustment mechanism of BOP: 
The adjustment mechanism can be explained with the help 
of different theories of balance of payment: 
 
1. Devaluation: The elasticity approach:
This approach is associate with Marshall and Lerner, it 
studies the conditions under which devaluation restores equilibrium 
in the balance of payments. In its simple form, the rule state that 
the price elasticities of demand for imports and exports must sum to 
greater than unity for an improvement in the Balance payment 
position. thus , the condition for improving balance of payments 
position by devaluation of domestic currency id given by: 
Ex +Em >1 
Where, Ex is demand elasticity of exports and Emi is the demand 
elasticity of imports.