How is each of the following recorded in India’s balance of payments?
(A) An Indian company buys a car company in the UK.
(B) A resident of China buys shares of an Indian company.
(C) A family in India receives a gift of money from a relative who lives abroad.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A) Capital account, debit; (B) Capital account, credit; (C) Current account, credit
Buying or selling an asset goes in the capital account: a purchase of a foreign asset is a debit, a sale of a domestic asset to a foreigner is a credit. A gift is a transfer payment, which is a current account item.
(A) An Indian company buys a car company in the UK — capital account, debit, since foreign exchange flows out.
(B) A resident of China buys shares of an Indian company — capital account, credit, since India sells an asset.
(C) A family in India receives a gift of money from abroad — current account, credit, since money comes in for free.
NCERT (2026-27): “6.1.1 Current Account … Transfer payments are the receipts which the residents of a country get for ‘free’, without having to provide any goods or services in return. They consist of gifts, remittances and grants. …” “Capital Account records all international transactions of assets. An asset is any one of the forms in which wealth can be held, for example: money, stocks, bonds, Government debt, etc. Purchase of assets is a debit item on the capital account. If an Indian buys a UK Car Company, it enters capital account transactions as a debit item (as foreign exchange is flowing out of India). On the other hand, sale of assets like sale of share of an Indian company to a Chinese customer is a credit item on the capital account. …” |