The correct option is 2 and 3 only.
Explanation
The Balance of Payments (BoP) is a systematic record of all economic transactions between residents of a country and the rest of the world. The Current Account is one of its two primary accounts (the other being the Capital Account) and is further divided into the trade in goods (Visibles) and the trade in intangibles (Invisibles).
Statement-wise Analysis:
- Statement 1 is Incorrect. The difference between the export and import of tangible goods (merchandise) is termed the Balance of Trade (or Trade Balance). "Net Invisibles" refers to the balance of transactions involving intangibles, which cannot be physically seen or touched at borders.
- Statement 2 is Correct. Net Invisibles are broadly classified into three categories:
- Services (Non-factor income): Receipts and payments for services such as tourism, transportation, insurance, banking, and software services.
- Income (Factor income): Returns on factors of production, such as investment income (profits, interest, dividends) and compensation of employees.
- Transfers: Unilateral receipts or payments with no quid pro quo, such as remittances, donations, and grants.
- Statement 3 is Correct. The Current Account is the sum of the Balance of Trade (Net Visibles) and the Balance of Invisibles (Net Invisibles). Thus, Net Invisibles is a fundamental component of the Current Account.
Key Takeaway:
Net Invisibles represent the net balance of Services, Income (Factor Income), and Transfers. It is a crucial component of the Current Account, distinct from the Balance of Trade (which deals only with tangible merchandise).