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CAPITAL ACCOUNT CONVERTIBILITY FOR INDIA

From time to time the issue of CAC had been surfacing in India. As early as 1997 the RBI published the Report on Capital Account Convertibility.  In essence the CAC simply means the freedom of citizens (and others) to convert the financial assets of home country into financial assets of another country.  While the ultimate destination for liberalization ought to include CAC – as a step towards integration with global economy, but various apprehensions force the regulatory authority to carefully proceed in the matter. Capital flight has been a major concern for Central Banks everywhere. Also the Current Account Deficits generated in India (due to excess of imports over merchandise exports) almost always in the past does not inspire confidence in the economy’s ability to generate foreign exchange earnings.  The CAC fall out could lead to a crisis of foreign exchange reserves. 


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