Question

Read the following statements – Assertion (A) and Reason (R) carefully.
Assertion (A): Shipping service provided by an Indian company to foreign companies will be recorded in the current account of Balance of Payments (BOP).
Reason (R): Current account of Balance of Payments (BOP) does not alter the status of the asset or liabilities of the residents of India.

• 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:

The current account includes trade in goods and services, and income flows, but it excludes changes in ownership of assets or liabilities. Services like transport and shipping are part of invisible trade.

Answer 1

The Correct Option is A

The Balance of Payments (BOP) is a systematic record of all economic transactions between the residents of a country and the rest of the world in a given time period. The BOP is divided mainly into two accounts: the current account and the capital account. 
Explanation of Assertion (A): The current account records all transactions related to trade in goods and services, income, and current transfers. When an Indian shipping company provides services to foreign companies, it earns income from services exported. This transaction is recorded as an invisible export in the current account because it involves export of services. 
Hence, Assertion (A) is true.
Explanation of Reason (R): The current account only records income and expenditure flows. It does not deal with transactions that involve a change in the ownership of assets or liabilities — these are recorded in the capital and financial accounts. Since service trade does not result in any asset or liability creation, Reason (R) is also true and correctly explains Assertion (A). 
Thus, both statements are correct and Reason is the correct explanation of the Assertion.