The Indian rupee has a market-determined exchange rate but the RBI trades actively in the USD/INR currency market to impact the effective exchange rates. Other rates the EUR/INR and INR/JPY have the volatility characteristic of floating exchange rates. Through RBI, the central bank has not followed a strategy of pegging the INR to a specific foreign currency at a particular exchange rate. RBI intervention is only done to ensure low volatility in exchange rates. RBI does not intervene to influence the rate of the Indian rupee in relation to other currencies. CAC means the freedom to convert rupee into any foreign currency (Euro, Dollar, Yen, Renminbi etc.) and foreign currency back into rupee for capital account transactions.

In other words, if Indians are allowed to buy only foreign goods and services but restrictions remain on the purchase of assets abroad, it is only current account convertibility. As of now, convertibility of the rupee into foreign currencies is almost wholly free for current account i.e. in case of transactions such as trade, travel and tourism, education abroad etc. The term convertibility of a currency indicates that it can be freely converted into any other currency. Convertibility can also be identified as the removal of quantitative restrictions on trade and payments on current account.

World Trade organisation was founded on 1 January 1995, is an intergovernmental organisation that is concerned with the regulation of international trade between nations. S Forex reserves increasing steadily, it has slowly and steadily removed restrictions on movement of capital on many counts. Unlimited amount of gold is allowed to be imported which is not allowed now. Individuals are allowed to invest in foreign assets, shares, etc., up to the level of $ 2,50,000 per annum. On the other hand, Capital Account Convertibility is widely regarded as the hallmark of developed countries. It is also seen as the major comfort factor for foreign investors since it allows them to reconvert local currency back into their own currency and move out from India.

convertibility of the rupee implies

In the case of capital account convertibility, a currency can be converted into any other currency without any transaction. 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 for easy financial transactions for the export and import of goods and services. Considerable evidence has accumulated over the yeas that for most countries, deregulation of foreign trade transactions must precede deregulation of international capital account flows.

The symbol of the Indian Rupee characterizes India’s worldwide identity for currency transactions and economic clout. This video covers MCQs on inflation that are generally asked in competitive exams. Lets solve them and revise key concepts such as causes, effects and calcul… An industrial policy is planning to focus on the development and growth of all or part of the economy and especially the part of the manufacturing sector. Fiscal policy is the use of government spending and taxation to influence the economy. Economic growth is an increase in the production of economic goods and services, compared from one period to another period of time.

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Convertibility of currency means when the currency of a country can be freely converted into the foreign exchange at the market-determined rate of exchange. “My hope is that we will get to full capital account convertibility in a short number of years,” said Raghuram. G. Rajan, ex-governor of the Reserve Bank of India on 10 April 2015. ForumIAS provides a detailed analysis of important news articles through its 9PM brief. In current affairs reading Editorials Online needs an in-depth focus and hence we provide a separate analysis of daily editorials which is not found in any other website. Click the following link to access these free preparation initiatives in Portal.

Availability of large funds to supplement domestic resources and thereby promote economic growth. Some of the above types of transaction are in the nature of non-commercial operations of the Government, which are relatively inelastic from the Domestic supply/demand perspectives. Thus, purchase of public goods like departmental non-commercial imports, defence equipments equipment, space research etc come under this category.

Expanding industries Select the correct answer using the code given below. IAS officers hold the most important positions in Central and State Governments and in Public Sector Undertakings . They take the most important decisions in the administration of Government policies and development programs. ForumIAS provides the right approach to excel in this exam through their toppers who have shared their success mantras and their study materials in an elaborate manner.

ForumIAS also provides compilations and Free downloads for UPSC IAS preparation Knowing is never enough for IAS exam. An IAS aspirant must be engaged in answer writing practice to do well in UPSC IAS Mains Exam. ForumIAS has launched a Mains Marathon initiative for IAS mains Online answer writing. For Daily Must Read Newspaper articles, Visit Must Read Newspaper page here. Must Read Newspaper is an Initiative by Team ForumIAS to provide Current Affairs links to the Must Read Articles of The Day from Newspaper. The rupee is both convertibles on capital account and current account.

But full convertibility of currency for capital account transactions is still a distant dream. All Other payment transactions for import of goods and services will have to take place exclusively at the market exchange rate. Convertibility of the rupee implies Freely permitting the conversion of the rupee to other major currencies and vice versa. Apital Account convertibility in its entirety would mean that any individual, be it Indian or Foreigner will be allowed to bring in any amount of foreign currency into the country. Non-convertibility can generally be defined with reference to transaction for which foreign exchange cannot be legally purchased (e.g. import of consumer goods etc), or transactions which are controlled and approved on a case by case basis . A move towards free convertibility implies a reduction in the number / volume of the above types of transaction.

This means, they can make investments to the tune of up to $500,000 in a calendar year. In simple terms, a capital account keeps a record of all the transactions related to assets between India and other countries. The exchange rate is determined by the demand for and supply of a currency.

Some other items covered under the special set of transaction at the official rate have a potentially significant cost-push effect on the economy like Crude oil and fertilizers. These are goods whose domestic demands and supply price elasticities are low and which from a significant input to an economy. Currency Convertibility is the ease with which a country’s currency can be converted into gold or another currency.

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These are stock market returns, reduction in transaction cost due to free rupee convertibility, and improvement in savings and investments which effectively accelerates growth. A market channel in which the exchange rate is determined by market forces of supply and demand of foreign exchange where access if free for all transactions . Convertibility of rupee implies freely permitting the conversion of rupee to other currencies and vice versa. Convertibility is the quality that allows money or other financial instruments to be converted into other liquid stores of value.

convertibility of the rupee implies

Freely convertible currencies have immediate value on the foreign exchange market, and few restrictions on the manner and amount that can be traded for another currency. C Capital account convertibility means free conversion of cross-border capital flows. Any entity can convert domestic currency into hard currency at the prevailing market rate and take hard currency out of the country without the need of offering any explanation. In general, the convertibility of rupee means that those who have a foreign exchange (e.g. US dollars, Pound Sterlings, etc.) can get them converted into rupees and vice-versa at the market-determined rate of exchange. Rupee convertibility means the system where any amount of rupee can converted into any other currency without any question asked about the purpose for which the foreign exchange is to be used. Though impressionistic reports suggest that the rupee is already convertible in the unofficial markets, this is an fact not the case Free convertibility refers to officially sanctioned market mechanism for currency conversion.

Convertibility establishes a system where the market place determines the rate of exchange through the free interplay of demand and supply forces. Here, full convertibility of rupee means right of a resident to convert rupee into foreign currency and vice versa for all purposes – both current account transactions and capital account transactions. In India, there is only partial convertibility as several restrictions are there for capital account convertibility. Current account convertibility is the next phase for attaining full convertibility of rupee. Prior to the First World War the whole world was having gold standard under which the currency in circulation was allowed to get converted either in gold or other currencies based on the gold standard. But after the failure of Bretton woods system in 1971 this system changed.


The correct answer isFreely permitting the conversion of the rupee to other major currencies and vice versa. International Monetary Fund is an international organisation is founded in 1944. Its aim is to promote global economic growth and financial stability, encourages international trade and reduces poverty.

  • In simple terms, a capital account keeps a record of all the transactions related to assets between India and other countries.
  • Expanding industries Select the correct answer using the code given below.
  • With reference to the 2022 exam cycle, The Union Public Service Commission examination was conducted on the 16th, 17th, 18th, 24th, and 25th of September 2022.
  • This video covers MCQs on inflation that are generally asked in competitive exams.

After the collapse of Breton Woods’s system in 1971, the various countries switched over to the floating foreign exchange rate system. Under the floating or flexible exchange rate system, exchange rates between different national currencies are allowed to be determined through market demand for and supply of the same. Currency convertibility implies the ease with which a country’s currency can be converted into gold or another currency.

As per labour policy the government banned the employment of children below the age of 14 years in factories, mines and hazardous employments. The scheme, however, is not available to corporates, partnership firms, HUF, Trusts, etc. In September 1995, the RBI appointed a special committee to process all applications involving Indian direct foreign investment abroad beyond US $ 4 million or those not qualifying for fast track clearance.

Convertibility is very significant for international trade and commerce. When a currency is inconvertible, it becomes a risk and barrier to trade with foreign countries that have no need for the domestic currency. Currency convertibility is the ease with which a country’s currency can be converted into gold or another currency. Currency convertibility is important for international commerce as globally sourced goods must be paid for in an agreed-upon currency that may not be the buyer’s domestic currency. The International movement of capital is not always free; countries restrict flows of capital as and when needed to safeguard their markets from erratic flows of capital. In India, for example, there are restrictions on the movement of foreign capital and the rupee is not fully convertible on capital account.

Convertibility of Indian Rupee

Convertibility of rupee implies freely permitting theconversion of rupee to …more other currencies and vice versa. If Indiaallows full capital account convertibility, it may result in1. India choosing to maintain very low foreign exchange reservesSelect the correct answer using the codes below. In India, there is convertibility for current international transactions but restrictions exist for international capital movements.

63 candidates have been recommended by the commission to fill in the remaining posts. With reference to the 2022 exam cycle, The Union Public Service Commission examination was conducted on the 16th, 17th, 18th, 24th, and 25th of September 2022. The candidates are required to go through convertibility of the rupee implies a 3 stage selection process – Prelims, Main and Interview. The marks of the main examination and interview will be taken into consideration while preparing the final merit list. The candidates must go through the UPSC Civil Service mains strategy to have an edge over others.

Indian corporate is allowed full convertibility in the automatic route up to $ 500 million overseas ventures (investment by Ltd. companies in foreign countries allowed). World Bank founded in 1944, is an international financial institution, which provides loans and grants to the governments of low per capita income countries for the purpose of pursuing capital projects. Currently, India has a partially convertible capital account policy. Improved access to international financial markets and reduction in cost of capital. Capital account convertibility exists for foreign investors and Non-Resident Indians for undertaking direct and portfolio investment in India. One had toseek the permission of the central bank to purchase foreign exchange.