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Difficulty: Very hardEconomic Developments, Union & State Budgets, and Economic Surveys

With reference to external sector dynamics, Balance of Payments (BoP) accounting conventions, and budget receipt classifications reviewed in official Economic Surveys and Union Budgets, consider the following statements:

1. Commercial borrowings (including Commercial Paper and External Commercial Borrowings) constitute the largest component of India's total external debt stock.
2. Foreign cash grants received from sovereign nations and multilateral organizations are accounted for under Non-Tax Revenue Receipts in the Union Budget.
3. Private secondary income transfers, such as inward worker remittances, are recorded under the Capital Account of the Balance of Payments as capital inflows.

Which of the statements given above are correct?

  1. 1 and 2 onlyAnswer
  2. B
    2 and 3 only
  3. C
    1 and 3 only
  4. D
    1, 2, and 3

Answer

The correct combination is '1 and 2 only'.
Statements 1 and 2 are factual and conceptually sound. Commercial borrowings constitute the largest share of Indian external debt. Foreign cash grants add to government revenue without creating debt liabilities, placing them strictly under Non-Tax Revenue Receipts. Statement 3 is false because inward remittances are current transfer payments recorded in the Current Account.

Step-by-Step Solution

1
Analyze Statement 1 regarding India's external debt composition.
According to Economic Survey findings, Commercial Borrowings represent the largest component of India's external debt stock (~32-34%), followed by Non-Resident Indian (NRI) deposits and short-term trade credit.
Verifying component weightages in external debt statistics.
2
Analyze Statement 2 regarding Union Budget revenue classification.
Grants received from external sources do not create any repayment obligation (liability) nor liquidate government assets. Hence, they are classified under Revenue Receipts (specifically under Non-Tax Revenue).
Applying government accounting rules under FRBM and budget structures.
3
Analyze Statement 3 regarding Balance of Payments (BoP) accounts.
Inward remittances from diaspora belong to secondary income transfers within the Invisibles sub-header of the Current Account, not the Capital Account.
Distinguishing between current transfers (non-repayable flows) and capital transactions (FDI, FPI, loans).

Key Concept

Balance of Payments Accounting and Union Budget Receipt Classification
Estimated Time:2m 0s
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Topics

Economic Developments, Union & State Budgets, and Economic Surveys

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