Read the following statements, Assertion (A) and Reason (R):
Assertion (A): External assistance is recorded in the capital account of the balance of payments.
Reason (R): External assistance received from abroad brings foreign exchange into the country.
From the given alternatives, choose the correct one:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).
Assertion (A): External assistance is recorded in the capital account of the balance of payments. — True. External assistance (government aid and loans from abroad) is one of the items of the capital account.
Reason (R): External assistance received from abroad brings foreign exchange into the country. — True. Assistance received is an inflow of foreign exchange.
Why R does not explain A?
Bringing in foreign exchange does not decide the account. Exports also bring in foreign exchange, yet they go to the current account.
The real reason for A: the capital account records international transactions of assets, including borrowings. External assistance (government aid and loans) is one of its items.
NCERT (2026-27): “6.1.2 Capital Account Capital Account records all international transactions of assets. … Fig. 6.2 classifies the items which are a part of capital account transactions. These items are Foreign Direct Investments (FDIs), Foreign Institutional Investments (FIIs), external borrowings and assistance.”
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