Balance of payment, Money supply and Exchange rate linkage in India

External sector plays a significant role in the sustainable economic development of an economy. This paper aims to examine the correlation between balance of payment and macroeconomic variables mainly Money supply and Exchange rate of India. The study is built on fundamental assumption that Balance of payment (BOP) is linked to a positive relation-ship with the macroeconomic variables i.e. Money supply (M3)) and Foreign exchange rate (FER)(USD to INR. negative coefficients are found with M3 and FER. This paper is based on secondary data from 1991 -2020 obtained from RBI data base on Indian Economy. Analysis of Variance (ANOVA) and multiple regression techniques were employed to estimate the correlation between the variables. ADF Test for time series variables to test unit root and Garner Casualty test were run to check instantaneous casualty and reliability of the data. Though it is elusive to establish a direct impact of money supply and Foreign exchange rate on BOP. However, this study reveals that there is a strong correlation between BOP, M3 and FER