Financial Developments in India: Should India introduce capital account

The objective of this paper is to examine whether India has reached a stage of financial development when full capital account convertibility could be introduced. In its report on capital account convertibility the Tarapore Committee provided a succinct and subtle definition: capital account convertibility is the freedom to convert local financial assets into foreign financial assets and vice-versa at market determined rates of exchange. It is associated with changes of ownership on foreign/domestic financial assets and liabilities and embodies the creation and liquidation of claims on or by the rest of the world. Capital account convertibility can be, and is, coexistent with restrictions other than on external payments. It also does not preclude the imposition of monetary/fiscal measures relating to foreign exchange transactions, which are of a prudential nature. (Reserve Bank of India, 1997)