How many of the following are recorded in the current account of India’s balance of payments?
(A) Interest received by Indians on loans given abroad
(B) Foreign direct investment in India by a foreign firm
(C) Remittances sent home by Indians working abroad
(D) Purchase of Indian shares by foreign institutional investors
(E) Shipping services sold by an Indian firm to foreigners
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Three
The current account records trade in goods and services and transfer payments; services include factor income. The capital account records transactions in assets.
(A) Interest received by Indians on loans given abroad — Current account. It is factor income, an earning on capital.
(B) Foreign direct investment in India by a foreign firm — Capital account. FDI is the purchase of an asset in India.
(C) Remittances sent home by Indians working abroad — Current account. Remittances are transfer payments.
(D) Purchase of Indian shares by foreign institutional investors — Capital account. Shares are assets; Foreign Institutional Investments are part of the capital account.
(E) Shipping services sold by an Indian firm to foreigners — Current account. Shipping is non-factor income.
NCERT (2026-27): “6.1.1 Current Account Current Account is the record of trade in goods and services and transfer payments. Figure 6.1 illustrates the components of Current Account. Trade in goods includes exports and imports of goods. Trade in services includes factor income and non-factor income transactions. 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. They could be given by the government or by private citizens living abroad.” “… Invisibles include services, transfers and flows of income that take place between different countries. Services trade includes both factor and non-factor income. Factor income includes net international earnings on factors of production (like labour, land and capital). Non-factor income is net sale of service products like shipping, banking, tourism, software services, etc.” “6.1.2 Capital Account 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. … These items are Foreign Direct Investments (FDIs), Foreign Institutional Investments (FIIs), external borrowings and assistance.” |