Question

Read the following statements: Assertion (A) and Reason (R). Choose the correct alternative from those given below: Assertion (A): In case of an unfavourable Balance of Trade, the Current Account of the nation may be in surplus. Reason (R): Net invisible receipts of a nation can exceed the Net visible receipts. (Choose the correct alternative)

• A. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A).
• B. Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation of Assertion (A).
• C. Assertion (A) is true, but Reason (R) is false.
• D. Assertion (A) is false, but Reason (R) is true.

Hint:

A country can have a trade deficit but still maintain a Current Account surplus if it earns significantly from services and remittances.

Answer 1

The Correct Option is A

1. Assertion (A) is valid:
- A country's Balance of Trade (BoT) can be negative when visible imports surpass visible exports.
- Nevertheless, the Current Account can maintain a surplus if net receipts from invisibles (services, remittances, and transfers) are greater than net receipts from visible trade.

2. Reason (R) is also valid and provides an explanation for Assertion (A):
- Invisible receipts encompass income from tourism, IT services, remittances, and financial transfers, which can compensate for a deficit in visible trade.
- Should these invisible receipts be sufficiently high, the Current Account might remain in surplus even with a trade deficit.

Conclusion:
As both the assertion and reason are accurate, and the reason clarifies the assertion, option (A) is the correct choice.