Indian government took loan from International monetary fund in 1990s. According to you, on which side of the BoP account shall the transaction be recorded?

Credit side of capital account

The correct answer is Option 1: Credit side of capital account

As there is inflow of currency it means it will be on the credit side of the account. Now, the question is whether it will be in the capital account or current account.

Capital account records all the transaction which affects the assets and liabilities of the countries. Whereas, current account records all the transactions of good and services and which are recurring in nature.

Thus, as loans cause an increase in the liabilities of the government, it will be recorded on the credit side of capital account.