Current Account of the Balance of Payments

The current account of the balance of payments records transactions in goods, services, income and current transfers between a country’s residents and non-residents during a given period. Under the standard classification, it comprises trade in goods and services, primary income and secondary income. Its balance is the sum of credits from these transactions minus the corresponding debits.

Transactions included in the current account

In India’s balance-of-payments presentation, merchandise trade is shown separately, while services, income and transfers are commonly grouped as invisibles.

• Goods cover exports and imports of physical products, conventionally described as merchandise trade.
• Services include transport, travel, financial, insurance, communication, business and other services supplied between residents and non-residents.
• Primary income includes compensation of employees and investment income such as interest, dividends and reinvested earnings receivable from or payable abroad.
• Secondary income consists of current transfers made without a direct economic return, including personal transfers such as remittances and current transfers involving government or other sectors.

Credits, debits and the current-account balance

• Exports of goods and services, primary income receivable and current transfers received are recorded as current-account credits.
• Imports of goods and services, primary income payable and current transfers made are recorded as current-account debits.
• The current-account balance equals the balance on goods and services plus the balances on primary income and secondary income.
• A current-account surplus arises when credits exceed debits, while a current-account deficit arises when debits exceed credits.

Distinction from the other accounts

The nature of a transaction, rather than merely the movement of money across borders, determines its balance-of-payments classification.

• Capital transfers and transactions in non-produced, non-financial assets belong to the capital account rather than the current account.
• Transactions involving financial assets and liabilities, such as direct investment, portfolio investment, loans and reserve assets, are recorded in the financial account.
• A personal remittance is a secondary-income transaction, whereas cross-border acquisition of a bond or equity security is a financial-account transaction.

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