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Zorluk: OrtaIndustrial Policies, Infrastructure Sector, Balance of Payments, and External Trade

Consider the following statements regarding the structural accounting of India's Balance of Payments (BoP):

1. Profit earned by a foreign entity in India and repatriated to its parent company abroad is recorded as a debit entry under the Current Account.
2. Foreign Institutional Investor (FII) equity inflows into Indian stock markets are classified under the Current Account as invisible transfer receipts.
3. Interest payments made by an Indian enterprise on External Commercial Borrowings (ECB) are recorded under the Capital Account.

Which of the statements given above is/are correct?

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

Cevap

1 only
Statement 1 is the only correct statement. Repatriation of profits by foreign corporations operating within India constitutes an outflow of primary investment income, which is categorized under the invisibles section of the Current Account as a debit. Statement 2 is incorrect because Portfolio Investment (FII) creates a claim on domestic financial assets and is recorded under the Capital Account. Statement 3 is incorrect because interest paid to service foreign loans (ECB) is classified as an investment income debit under the Current Account, whereas only the principal borrowed or repaid is logged in the Capital Account.

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1
Analyze Statement 1 regarding repatriated profits.
Repatriated profits are part of investment income (primary income account under invisibles) in the Current Account. Since money goes out of India, it is recorded as a debit entry under the Current Account. Statement 1 is correct.
Income earned on foreign investments (dividends, profit, interest) is serviced through the Current Account.
2
Analyze Statement 2 regarding FII equity inflows.
Foreign Institutional Investor (FII) flows reflect cross-border asset purchase (portfolio investment), which creates a financial liability. Thus, FII inflows are recorded under foreign investment in the Capital Account, not the Current Account. Statement 2 is incorrect.
Portfolio investments alter the financial asset/liability position of the country.
3
Analyze Statement 3 regarding interest paid on External Commercial Borrowings (ECB).
While the principal loan amount of ECBs is recorded under the Capital Account, the servicing of debt (interest payments) is an income outflow recorded under investment income in the Current Account. Statement 3 is incorrect.
Debt principal flows affect capital liabilities (Capital Account), whereas interest servicing is an income transaction (Current Account).

Anahtar Kavram

Balance of Payments Accounting: Distinguishing Current Account Income Flows from Capital Account Asset Transactions
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Konular

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