Q.22 Write a note on the present situation regarding current and capital account convertibility of rupee.

Ans. In the Union Budget 1992–93, the Liberalised Exchange Rate Mechanism Scheme (LERMS) was announced. Since then, India has always been moving ahead in the direction of greater rupee convertibility, which may be seen as given below:

(i) In August 1994, rupee became fully convertible in the current account.

(ii) In August 1994, the rupee became partially convertible in the capital account (60:40).

(iii) The current policy regarding the capital account convertibility in India stands as given below:

(a) Rupee got full convertibility on Indian corporate’s proposal of foreign investment upto US$ 500 million—put in automatic route approval.

(b) Rupee became fully convertible in case of corporates intending to prepay their external commercial borrowings (ECBs) above US$ 500 million— automatic route.

(c) In May 2015, the government allowed individuals to invest abroad

with an upper limit of US$ 2,50,000 per year.

As India is becoming self-dependent in earning foreign exchange, we may hope that in the near future, the government might be announcing rupee’s full convertibility in the capital account. India’s cautious moves towards full capital account convertibility has been appreciated by the IMF.