In the capital account of the balance of payments, the reinvested earnings of a foreign company operating in India come under:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → direct investment
In the capital account, investments are of two kinds. Direct investment covers FDI, equity capital, reinvested earnings and other direct capital flows. Portfolio investment covers FII and offshore funds.
When a foreign company keeps its profits in its Indian business, it adds to its direct stake in India.
NCERT (2026-27): “6.1.2 Capital Account … 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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