Examine the components of India's Balance of Payments accounts. Which of the following specific transactions is recorded under the 'Current Account' rather than the Capital Account?

💡 Solution & Explanation

Remittances sent by resident citizens working abroad are classified as current transfers and recorded under the Current Account of the Balance of Payments, as they do not create future repayment liabilities or ownership claims. Conversely, foreign direct investment, portfolio flows, and external commercial borrowings alter financial assets and liabilities, placing them within the Capital Account. The Current Account also covers trade in goods and services as well as investment income. India traditionally runs a surplus on the net invisible account which partially offsets its merchandise trade deficit.