CA Foundation · Business Economics · International Trade
In India's balance of payments, which of the following transactions is recorded in the capital account (as per the ICAI Foundation treatment) rather than the current account?
Foreign direct investment inflow into an Indian company is a capital account item because it changes the country's foreign liabilities. Software export earnings, remittances and interest payments are current account items, being services, transfers and investment income respectively.
- AReceipt of software export earnings by an Indian firm
- BRemittances sent home by Indians working in the Gulf
- CForeign direct investment inflow into an Indian companyCorrect
- DPayment of interest on external commercial borrowings
Explanation
Software exports are trade in services, remittances are unilateral transfers, and interest payments are investment income. All three belong to the current account. FDI inflow changes the country's financial claims and liabilities, so it is a capital account item.
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