If an Indian resident takes an American airlines services to travel to America then this transaction will be recorded in?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Current account of balance of payments.
Flying on an American airline, an Indian resident buys a service from a foreign firm, just as they might buy a foreign good: it is an import of services. Trade in goods and services, along with transfer payments, is recorded in the current account. The payment goes to the rest of the world, so it is entered on the debit side of India’s current account.
Why the other options are incorrect
Option (2) Capital account of balance of payments. — Incorrect. The capital account records purchases and sales of assets such as shares, land and loans; buying a ticket creates no asset or claim.
Option (3) As an accommodating item. — Incorrect. Accommodating items are made to bridge a BoP gap; a travel purchase is an autonomous transaction, made for its own sake.
Option (4) Not be recorded in the balance of payments account. — Incorrect. The BoP records every transaction between residents and the rest of the world, and this is one.
NCERT (2025-26): “6.1.1 Current Account … Current Account is the record of trade in goods and services and transfer payments. … 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.…” |