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"India Is Now Ready For Capital Account Convertibility: Pros and Cons" Flash/Flashart18-11-09 - 1.htm

The document discusses capital account convertibility in India, including what it means, examples of countries that have adopted it, and preconditions for introducing full capital account convertibility in India. Specifically: 1) Capital account convertibility means the freedom to convert local financial assets into foreign financial assets and vice versa at market exchange rates. 2) It involves changes in ownership of foreign and domestic financial assets and liabilities. 3) For India to introduce full capital account convertibility, preconditions like lowering the fiscal deficit, maintaining low inflation, sufficient foreign exchange reserves, and low non-performing bank assets would need to be met.

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70 views5 pages

"India Is Now Ready For Capital Account Convertibility: Pros and Cons" Flash/Flashart18-11-09 - 1.htm

The document discusses capital account convertibility in India, including what it means, examples of countries that have adopted it, and preconditions for introducing full capital account convertibility in India. Specifically: 1) Capital account convertibility means the freedom to convert local financial assets into foreign financial assets and vice versa at market exchange rates. 2) It involves changes in ownership of foreign and domestic financial assets and liabilities. 3) For India to introduce full capital account convertibility, preconditions like lowering the fiscal deficit, maintaining low inflation, sufficient foreign exchange reserves, and low non-performing bank assets would need to be met.

Uploaded by

meenalra
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© © All Rights Reserved
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"India is now ready for capital account

convertibility: pros and cons



http://www.taxmann.com/datafolder/
Flash/Flashart18-11-09_1.htm

+ Examples of each for countries following it
What is capital a/c convertibility (CAC)-partial
& full
foreign exchange transactions
accounts
current
account
transactions
capital
account
transactions
If an Indian citizen needs foreign
exchange of smaller amounts, say
$3,000 they can obtain the same from a
bank or a money-changer. This is a
current account transaction

If a large amount of foreign exchange,
say $1 million, the importer will have to
first obtain the permission of the
Reserve Bank of India (RBI). If
approved, this becomes a capital
account transaction.




Capital Account Convertibility (CAC)
It means the freedom to convert the local
financial assets into foreign financial assets
and vice-versa at market determined rates of
exchange.

It is associated with the changes of ownership
in foreign/domestic financial assets and
liabilities
When is full CAC possible
Preconditions for introducing full CAC like:

a) Fiscal deficit of the GDP should go down.

b) The annual rate of inflation should remain low and
constant. It was maintained and achieved.

c) The foreign exchange reserves of the country should be
sufficient for six months imports. At present, foreign
exchange reserves are equal to two years import cover.

d) Non-performing assets of banks should not be more than
five percent of the deposits

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