Prime Minister Dr Singh is right in advocating a phased movement to fall convertibility starting with Special Economic Zones (SEZs), we need to move along the convertibility highway, even if slowly. Our Economy is in take off stage and needs timely infusions of fixed and working capital. Since India is now an enterprise driven economy like most others, the Rupee needs to become more convertible to reduce transaction costs. Fears of a Recurrence of the 1991 crisis, when our reserves were insufficient to finance 3 weeks imports are perhaps exaggerated. The currency has been ruling at below 47 to a dollar for the last 6 months. Investors and rating agencies are convinced that the India’s growth story is here to stay. Their views determine flows of FDI & FPI in a big way. Current Account transactions no longer influence a country’s BoP profile to the extent they did a couples of decades ago. Despite a ballooning trade deficit, our reserves have steadily increased over the years to 144 billion dollars.
Question :
1) Current Account Transactions no longer influence a country’s B.O.P. Discuss.
2) What is Capital Account Convertibility?
3) What are the risks in Capital Account Convertibility in Indian context?
4) What is the present status of Capital Account Convertibility in India?