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Capital Account Convertibility in India- Special Feature

Convertibility of a currency implies that a currency can be transferred into another currency without any limitations or any control. A currency is said to be fully convertible, if it can be converted into some other currency at the market price of that currency. If currency has to be convertible, it shall not be subjected to these restrictions.

Current account convertibility refers to currency convertibility required in the case of transactions relating to exchange of goods and services, money transfers and all those transactions that are classified in the current account.

On the other hand, capital account convertibility refers to convertibility required in the transactions of capital flows that are classified under the capital account of the balance of payments.

At present, Indian rupee is partly convertible on current account. In 1997, the Tarapore Committee on Capital Account Convertibility (CAC), constituted by the Reserve Bank,had indicated the preconditions for Capital Account Convertibility. The three crucial preconditions were fiscalconsolidation, a mandated inflation target and,strengthening of the financial system.....Read details

India adopted a gradualist approach while initiating aprocess of gradual capital account liberalisation in the early 1990s. In 2003, the RBI Governor outlined issues related to capital account convertibility in India.....Read details

Prime Minister Manmohan Singh on 18th March 2006 said there was merit in India moving towards fuller capital account convertibility. He asked Finance Minister and the Reserve Bank of India to revisit the subject and come out with a road map on capital account convertibility based on current realities

In response to Prime Minister's statement, Reserve Bank of India on 20th March 2006, announced Committee to set out Roadmap towards Fuller Capital Account Convertibility .....Read details

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