Commerce · Ch 28 — Balance of Trade and Balance of Payments
Components of the Balance of Payments
Components of the Balance of Payments
The Balance of Payments is divided into three broad accounts.
| Account | Records | Sub-heads |
|---|---|---|
| Current Account | Recurring, income-generating transactions | Visible trade; Invisible trade (Services, Income, Current transfers) |
| Capital Account | Changes in external assets/liabilities | External loans; FDI/FPI; Banking capital (incl. NRI deposits); Other capital transfers |
| Official Reserve Account | Change in official foreign-exchange reserves | Settles the net gap left by the Current + Capital Accounts |
(A) Current Account — records transactions relating to trade in goods and services, income, and current transfers, all of which are of a recurring, income-generating nature.
- Visible trade — exports and imports of goods (this is exactly the Balance of Trade from Section 1).
- Invisible trade (Services) — receipts/payments for shipping, banking, insurance, software/IT services, tourism, and similar services rendered to or received from abroad.
- Income — investment income such as interest, profit and dividends earned on foreign assets, and compensation of employees.
- Current transfers — one-way flows with no economic return expected, such as gifts, donations, and remittances sent home by NRIs (Non-Resident Indians).
(B) Capital Account — records transactions that create a change in the assets or liabilities of residents/non-residents — that is, movements of capital rather than income.
- External loans and borrowings (government and commercial).
- Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI) — investment in Indian companies, shares and securities by non-residents.
- Banking capital, including Non-Resident Indian (NRI) deposits. …
The part of the Balance of Payments that records trade in goods (visible trade) and services, income, and current transfers — transactions of a recurring …
The part of the Balance of Payments that records transactions causing a change in a country's external assets and liabilities — loans, foreign inves …
Investment by a non-resident in a country with the intention of acquiring a lasting management interest (e.g. setting up or controlling a company), as against a purely fi …