Elaborate any two components of the Capital Account under the Balance of Payments Account. Distinguish between Autonomous transactions and Accommodating transactions.

Question

Accepted Answer

**Two Components of Capital Account:**

1. **Investments from/to abroad:** Includes Foreign Direct Investment (FDI) where purchase of asset gives direct control (e.g., land, building), and Portfolio Investment where purchase doesn't give control (e.g., shares). Investments from abroad are credit items, investments to abroad are debit items.

2. **Borrowings and lendings from/to abroad:** Includes all transactions relating to borrowings from abroad by private sector, government, etc. Receipts of loans are credit items, repayments are debit items.

**Difference between Autonomous and Accommodating Transactions:**

| Basis | Autonomous | Accommodating |
|-------|-------------|---------------|
| **Meaning** | Transactions due to economic motive like profit | Transactions to cover deficit/surplus in autonomous items |
| **Effect on BOP** | Independent of BOP state | Undertaken to maintain BOP balance |
| **Account** | Both current and capital accounts | Only capital account |
| **Alternate Name** | Above the line items | Below the line items |