Economics • Indian EconomyHard
Evaluate the composition and mechanics of India's Balance of Payments accounts. Which of the following transactions is correctly classified under the 'Capital Account' of the Balance of Payments?
A. External commercial borrowings raised by domestic corporate entities from international financial markets✓ Correct Answer
B. Remittances sent by Indian citizens working abroad to their families residing domestically
C. Export earnings generated through the sale of software services to overseas clients
D. Interest payments made on external sovereign debt holdings held by foreign investors
💡 Solution & Explanation
The Capital Account of the Balance of Payments records all financial transactions that result in a change in the foreign assets or liabilities of a country, such as external commercial borrowings, foreign direct investment, and portfolio capital flows. Remittances, software export earnings, and interest payments on debt are current account transactions representing trade in goods, services, and primary income transfers. Maintaining capital account convertibility remains a calibrated process managed by the central bank.
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