Capital Account Convertibility means that the currency of a country can be converted into foreign exchange without any controls or restrictions. In other words, Indians can convert their Rupees into Dollars or Euros and Vice Versa without any restrictions placed on them. The reason why it is called capital account convertibility is that the conversion of domestic currencies into foreign currencies is allowed in the capital account and not only the current account. Capital account refers to expenditures and investments in hard assets, physical premises, and factories as well as investments in land and other capital-intensive items.
It will lead to free exchangeability of currency and unrestricted mobility of capital. Merits of full CAC Availability of large funds to supplement domestic resources and thereby promote economic growth Improved access to international financial markets and reduction - in cost of capital.
Improvement of the financial system in the context of global competition.
It can affect the stability of operations in India. Further speculative activities will increase the volatility Fluctuations in exchange rate may lead to increase in import prices which may lead to cost push inflation.
Imposing financial controls would become difficult ina globalized environment once CAC is introduced " It can destabilize the economy through massive Capital flight from a country.
In today's globalised context, such close integration will open up the Indian economy to the global shocks like the financial crisis.
S S Tarapore committee The committee submitted its first report in May Reserve Bank of India appointed the second Tarapore committee to set out the framework for full Capital Account Convertibility The report of this committee was made public by RBI on 1st September Recommendations of Second Tarapore committee In this report, the committee suggested 3 phases for adopting the full Capital account convertibility First Phase in Second phase in Third Phase by NRI should be allowed to invest in capital markets.Capital account convertibility is a debatable topic because many people think that it is good for the economy while others think that it is detrimental to the economy.
Under capital account convertibility regime a foreign national can convert the foreign currency into domestic currency and also he or she can freely buy and sell the assets like real estate, stocks, bonds and so on.
Capital Account Convertibility for India – Current Concerns S. Narayan1 The Indian Prime Minister announced at a major event at the Reserve Bank of India (RBI) in Mumbai some three weeks ago that India needed a road map for full Capital Account. Capital account convertibility means that its residence can purchase foreign exchange for the sake of buying financial assets from abroad, such as stocks or bonds or opening a bank account in another country, and similarly that foreigners can purchase domestic financial assets.
Current account convertibility means that a country's residents can purchase foreign exchange for the purpose of buying goods and services from abroad.
Capital account convertibility means that its residence can purchase foreign exchange for the.
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. There are several pros and cons associated with the capital account convertibility. ASSIGNMENT FINAL REPORT TOPIC: CAPITAL ACCOUNT CONVERTIBILITY ABSTRACT This report has been prepared to discuss the issue of Capital Account Convertibility (CAC) and India’s experience with it. The concept of CAC and its history and its implications has been discussed. “China has been steadily pushing forward renminbi capital account convertibility since the currency became convertible under the current account in ,” the central bank said in a report released on its website. Easier convertibility means both domestic and foreign investors will have more freedom in investment and currency exchanges.
Capital Account Convertibility-or a floating exchange rate-is a feature of a nation’s financial regime that centers around the ability to conduct transactions of local financial assets into foreign financial assets freely and at market determined exchange rates.
capital account convertibility in a phased manner, the prominent American economist Paul Krugman had launched a high profile campaign to get East Asian economies to introduce foreign exchange controls as the only way to get out of their economic crises.