| Account | Records | Examples |
|---|---|---|
| Current account | Trade in goods (visible balance); trade in services (invisible); primary income; secondary income (current transfers) | Exports of software services; imports of crude oil; interest and dividends paid to foreign investors; remittances from Indians working in the Gulf |
| Capital account | Capital transfers and the acquisition or disposal of non- produced, non-financial assets (usually small) | Debt forgiveness; transfers of patents, trademarks, land rights by embassies; migrants' transfers of assets |
| Financial account | Flows of financial investment: direct investment (FDI), portfolio investment (shares and bonds), other investment (bank loans, deposits), changes in reserve assets | A foreign car maker building a factory in Chennai (FDI); foreign investors buying Indian shares; RBI buying dollars (reserves) |
| Net errors and omissions | Balancing item to make the accounts sum to zero (statistical discrepancy) |
In principle the balance of payments always balances: current account + capital account + financial account + net errors and omissions = 0. A current account deficit must be financed by a net inflow on the financial account (foreign borrowing, FDI, portfolio inflows) or by running down reserves. India usually has a deficit on goods trade (oil, gold, electronics imports), a large surplus on services trade (IT and business services) and large inflows of remittances, resulting in a moderate current account deficit financed by capital inflows.
Worked example: balance of payments
Exports of goods $430bn; imports of goods $680bn; exports of services $340bn; imports of services $180bn; primary income (net) −$45bn; secondary income (net) +$110bn. Trade in goods balance = 430 − 680 = −$250bn. Trade in services = 340 − 180 = +$160bn. Balance of trade = − $90bn. Current account = −250 + 160 − 45 + 110 = −$25bn (a deficit), which must be matched by a net financial/capital account inflow of about $25bn (allowing for errors and omissions).