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Question

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

In India's Balance of Payments (BoP) accounting, which of the following transactions are categorized under the 'Invisibles' component of the Current Account?

  1. Earnings from software service exportsAnswer
  2. Private remittances received from non-resident workersAnswer
  3. C
    Foreign Direct Investment inflows into domestic equity
  4. D
    External Commercial Borrowings raised by domestic firms

Answer

Earnings from software service exports and private remittances received from non-resident workers are included under the Invisibles component of the Current Account.
Earnings from software service exports (services) and private remittances received from non-resident workers (unilateral transfer payments) are non-merchandise receipts. They do not alter foreign financial asset or debt liability positions, so they are categorized under the Invisibles section of the Current Account.

Step-by-Step Solution

1
Understand the main components of the Balance of Payments (BoP) Current Account.
The Current Account consists of Visible Trade (merchandise exports and imports) and Invisible Trade (services, income, and transfers).
Categorizing transactions requires separating trade in physical goods from non-physical transactions.
2
Identify the nature of software service exports and worker remittances.
Software services fall under non-factor service exports, and worker remittances fall under transfer payments (invisibles). Neither creates financial assets or liabilities.
Current Account items reflect net flow of income, goods, and services without altering foreign asset ownership positions.
3
Distinguish current account transactions from capital account transactions.
Foreign Direct Investment and External Commercial Borrowings involve ownership changes or debt liabilities, placing them strictly in the Capital Account.
Transactions changing the external financial asset/liability position of a country belong to the Capital Account.

Key Concept

Components of Balance of Payments Current Account (Invisibles)
Estimated Time:45s
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Topics

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