Income account (balance of payments)

Indian Economy glossary

Also called: Primary income account · Topic: Balance of Payments and Exchange Rates · NCERT: Class 12, Ch 6 "Open Economy Macroeconomics"

Meaning

The income account records a country's net earnings from factors of production (labour, land and capital) used across borders. It covers compensation of employees, interest, dividends and profits. It is part of invisibles in the current account. Under the IMF's BPM6 manual it is called primary income. Income received from abroad is a credit, and income paid to foreigners is a debit.

Example

India pays interest on its external debt and foreign firms send dividends home, so both are debits. Interest and wages earned abroad by Indians are credits. In NCERT's Table 6.1, the income item is −10 (US$ million), which means more income was paid out than received.

Don't confuse with

  • Transfers (secondary income): gifts, grants and remittances are received without giving anything in return. Primary income is a payment for a factor's service.
  • Non-factor services: shipping, software or tourism are services traded for their own sake, not payments to factors.

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