RAS question
Which of the following is NOT part of the Capital Account of BoP?
Correct answer: (B) Remittances.
Remittances are not part of the capital account of the balance of payments; they are recorded in the current account under secondary income or transfers.
Explanation
Remittances are personal transfers sent by migrants, so they belong to the current account, not to the capital account. The RBI's balance of payments material places transfers under secondary income and lists personal transfers between resident and non-resident households, including workers' remittances, within that section. This matches the basic BoP distinction: the current account records flows such as goods, services, income and transfers, while the capital and financial account records capital transfers and financial flows. FDI, FPI, external commercial borrowings, NRI deposits, trade credit and banking capital are capital or financial account items; remittances are the odd one out because they are transfers rather than investment or borrowing flows.
Why the other options are wrong
- (A) External Commercial Borrowings are wrong as the answer because borrowings from abroad are capital or financial account flows, not current-account transfers.
- (C) FDI is wrong as the answer because foreign direct investment is a financial-account item, and the RBI material discusses FDI within the capital and financial account framework.
- (D) FPI is wrong as the answer because portfolio investment is explicitly part of the financial account, not a current-account transfer.
Concept
This tests the BoP classification of current-account transfers versus capital and financial flows. It recurs in RAS because external-sector questions often turn on recognising whether a transaction is income, transfer, investment or borrowing.