| Consider the following statements: |
| The Indian rupee is fully convertible |
| 1. In respect of current account of balance of payment |
| 2. In respect of capital account of balance of payment. |
| 3. In to gold. |
| Which of the statements given above is/are correct? |
A) 1 only
B) 3 only
C) 1 and 2 only
D) 1, 2 and 3
Correct Answer: A
Solution :
[a] Current account convertibility implies that the Indian rupee can be converted to any foreign currency at existing market rates for trade purposes for any amount. It allows easy financial transactions for the export and import of goods and services. Any individual involved in trade can get foreign currency converted at designated banks or dealers. In essence, current account convertibility remains within the trading realms. In the beginning of reforms, the rupee was made partially convertible for goods, services and merchandise only. During mid-1990s, the rupee was made fully convertible for current account for all trading activities, remittances and indivisibles. However, the rupee continues to remain capital account non-convertible. Capital account convertibility allows freedom to convert local financial assets into foreign financial assets and vice-versa. It includes easy and unrestricted flow of capital for all purposes which may include free movement of investment capital, dividend payments, interest payments, foreign direct investments in domestic projects and businesses, trading of overseas equities by local citizens and domestic equities by foreigners, foreign remittances and the sale/purchase of immovable property globally. As of today, one can still bring in foreign capital or take out local money for these purposes, but there are ceilings imposed by the government that need approvals.
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