Question

How will the purchase of Rafael planes by India from France be recorded in the balance of payments account?

• A. Credited to the current account
• B. Debited to the current account
• C. Credited to the capital account
• D. Debited to the capital account

Answer 1

The Correct Option is B

India's acquisition of Rafael aircraft from France constitutes a good imported into India. Within the balance of payments framework, trade in goods and services is accounted for in the current account.

The recording process is as follows:

1. This transaction involves the import of military hardware, classified as a good.
2. The current account of the balance of payments tracks all exchanges involving tangible assets, encompassing both exports and imports of goods and services.
3. Acquisitions from foreign entities are logged as a debit in the current account, signifying an outflow of national currency to settle payments for imported goods.

Therefore, the import of Rafael planes by India from France is recorded as a debit in the current account.

Accordingly, the appropriate classification is "Debited to the current account".