The Indian rupee is fully convertible:
1. in respect of Current Account of Balance of payment
2. in respect of Capital Account of Balance of payment
3. into gold
Which of these statements is/are correct?
Correct Answer: (a) 1 alone
Solution:In respect of capital account of balance of payment, the indian rupee is partially convertible after 1991.
• In India, Current Account is today fully convertible since August 19, 1994.
ο Prior to this date, India had partial Current Account convertibility.
• Accordingly, several provisions like remittances for service, education, basic travel, gift remittances, donation, and provisions of the Exchange Earners’ Foreign Currency Account (EEFC) were relaxed.
• It means that the full amount of foreign exchange required for current purposes will be available at the official exchange rate, allowing for unrestricted outflow of foreign exchange.
• Following the recommendations of the S.S. Tarapore Committee on Capital Account Convertibility (1997), India has been progressing towards full convertibility in this account, while taking necessary precautions.
• India still maintains partial convertibility (40:60) in the capital account.
ο However, within this policy framework, significant reforms have been implemented, and for certain levels of foreign exchange requirements, the economy allows full convertibility in capital account.