UPDATE: RBI Deputy Governor Says India On Verge Of Achieving Capital Account Convertibility

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RBI feels that India is close to achieving its capital account convertibility target

India is on the verge of achieving its long standing target of capital account convertibility, deputy governor of the Reserve Bank of India (RBI) T Rabi Sankar said on Thursday.

Addressing an event of foreign exchange dealers association, Mr Sankar said that the capital account convertibility rate has increased in the country.

Capital account of any country records the net changes in its foreign assets and liabilities, while convertibility refers to the ability to convert domestic currency into foreign currencies and vice versa for making payments for balance of payments (BoP) transactions.  

BoP refers to financial transactions undertaken by a country with other nations across the world during a particular period of time, normally one year.

“India has come a long way in achieving increasing levels of convertibility on the capital account. It has broadly achieved the desired outcome for the policy choices it has made, in terms of achieving a stable composition of foreign capital inflow,” he said.

Simultaneously he said, the country is also on the cusp of witnessing some fundamental shifts in this space with greater market integration expected in the near future.

Mr Sankar said that the rate of capital account convertibility will also accerate through measures like freer non-resident access to debt and greater market integration.

With this increase comes the responsibility to ensure that such flows are managed effectively with the right combination of capital flow measures, macro-prudential measures and market intervention, Mr Sankar noted.

On RBI’s role he suggested that it is restricted to taking precautionary measures.

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