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Capital account
Convertibility- the road ah
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Understanding Capital Account Convertibility
The RBI has defined Capital Accou
(CAC) as the freedom to convert lo
assets into foreign financial assets a
market determined rates of exchan
sort of intermediation and regulatio
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Local merchants
Anybody from anywhere in the world can in that currency.
Thus a US citizen could buy a flat in India
Since this is not allowed in India ,we say thhave full CAC.
So what is its use?
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Portfolio
Investment.
Stocks, Bonds,
Bank Loans, Derivatives
DirectInvestment.
Real estate
Production
facilities
Equity
investment.
Other
investmen
Holdings
loans
Bank
accounts
Currenc
Capital Account Transactions
Classification
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Hallmarks of a developed economy.
Features
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Good Times huge inflows of foreign capi
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Bad times enormous outflow of capita
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Global capital inflows .
Access to cheaper external credit.
Chance of export of domestic savings.
Features
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Comparison of Financial Openness
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Relaxation of the control by the Gov
RBI Limits with respect to foreign c
1. PrivateVisit - $10000
2. Business Travel - $25000
3. Gift/Donation - $5000
4. Employment/Immigration/Studies
5. Investment in Foreign Stock - $2500
Current
Restriction
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End of Balance of Payment (BoP) cr
PROs
-500
0
500
1000
1500
2000
2500
China Germany Russia
BOP
Exports Imports Balance of payme
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Plenty of Foreign Currency Reserves.
PROs
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Efficiency in Financial System.
Development of Securities Market
Worldwide Presence and Friendly Re
Diversify Portfolios Internationally.
PROs
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Depreciating Rupee.
CONs
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Volatility in Stock Markets
CONs
fl
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Impact on Inflation
CONs
I i li
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Income inequality
CONs
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Capital account convertibility is a processpersonally believe we should go forwardpace -
The lessons of the global crisis are inenthusiasm for capital account convertibility
-
There is a need to proceed with CAC bpace -
Quotes
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Infrastructure
liquidity position.
Hedge risks
Transparency
Regulation policies
Recommendations
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Capital account openness maymacroeconomic instability and dfinancial markets.
Liberalization of the capital account bring about far reaching changdeveloping country scenario and imwide range of activities.
Conclusion
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