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Question

Difficulty: EasyIndustrial Policies, Infrastructure Sector, Balance of Payments, and External Trade

In the context of India's Balance of Payments (BoP) accounting, which of the following is classified as a component of the Current Account?

  1. A
    Foreign Direct Investment (FDI)
  2. Remittances received from workers abroadAnswer
  3. C
    External Commercial Borrowings (ECBs)
  4. D
    Portfolio investment by Foreign Institutional Investors (FIIs)

Answer

Remittances received from workers abroad are classified as a component of the Current Account in India's Balance of Payments.
Remittances received from Indian workers abroad constitute unilateral transfer payments and are listed under the invisibles section of the Current Account. They do not alter the debt or asset liability position of the nation.

Step-by-Step Solution

1
Identify the main components of the Balance of Payments
BoP consists of the Current Account (trade in goods, services, income, and transfer payments) and the Capital Account (FDI, FPI, loans, and external borrowings).
Categorizing transactions depends on whether they alter foreign financial assets/liabilities or represent trade and unilateral transfers.
2
Analyze remittances from workers abroad
Remittances fall under private unilateral transfers under the 'Invisibles' section of the Current Account.
Transfers do not create future claims, debt liabilities, or asset ownership shifts.

Key Concept

Classification of Current Account versus Capital Account items in Balance of Payments
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Topics

Industrial Policies, Infrastructure Sector, Balance of Payments, and External Trade