Analyzing the Impact of Balance of Payments on Indian Economic Stability: A Structural Equation Modeling Approach
Authors-Assistant Professor Ms. Mithuna R, Mr. Gopi Vignesh
Keyword-Balance of Payments, Economic Stability, Structural Equation Modeling, Current Account Deficit, India, SPSS AMOS, Foreign Exchange Reserve
This study examines the structural relationship between India's Balance of Payments (BoP) components and macroeconomic stability over the period 2005–2023 using Structural Equation Modeling (SEM) with SPSS AMOS 26.0. Drawing on secondary data from the Re-serve Bank of India (RBI), World Bank Development Indicators (WDI), and IMF Balance of Payments Statistics, the research constructs two latent constructs BoP Position (ξ₁) and Econom-ic Stability (η) each measured by multiple reflective indicators. Results reveal a significant struc-tural path coefficient (β = 0.61, p < 0.001) from BoP Position to Economic Stability, indicating that improved BoP fundamentals substantially strengthen macroeconomic outcomes. The model achieves acceptable fit indices (CFI = 0.96, RMSEA = 0.048, SRMR = 0.052). Foreign ex-change reserves (λ = 0.88) and the current account deficit-to-GDP ratio (λ = 0.82) emerge as the most influential indicators of BoP Position, while GDP growth and inflation are the dominant reflectors of Economic Stability. The study identifies a persistent structural gap in India's mer-chandise trade, partially compensated by services exports and remittances. Findings carry im-portant policy implications for fiscal consolidation, export diversification, and the management of capital account flows.
Doi-[https://doi.org/10.5281/zenodo.20353262]