An Indian businessperson buys shares in a British car company. This transaction will be reflected in: (a) Balance of Trade, but not in Balance of Payments. (b) Balance of Payments, but not in Balance of Trade. (c) both Balance of Payments and Balance of Trade. (d) neither Balance of Payments nor Balance of Trade.

An Indian businessperson purchasing shares in a British car company is a financial transaction that alters the assets of an Indian resident outside India. According to the Balance of Payments (BoP) framework, such transactions are classified under the Capital Account because they involve changes in foreign assets and liabilities [1][2]. Specifically, this constitutes an outward foreign investment, which is a key component of the Capital Account [2]. In contrast, the Balance of Trade (BoT) only records the net difference between the export and import of physical goods (merchandise) [1][2]. Since the purchase of equity shares is a financial asset transaction rather than a trade in goods, it is excluded from the Balance of Trade but must be recorded in the broader Balance of Payments statement [1][2].

Sources

1. [1] Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 2: Money and Banking- Part I > 2.27 Balance of Payment (BoP) > p. 107
2. [2] Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 16: Balance of Payments > IRVE > p. 487