GROWING INDIA
With the around 7% GDP growth rate, India has emerged as one of the fastest growing economy after China. India has moved towards liberalization, privatization and globalization. It is opening up its markets so as to integrate with global economy and while doing so, India has been quite watchful in its approach to embrace global economy.In the wake of severe currency crisis in the late 1990s in many parts of the world and the globalization of the financial markets, many developing Latin American and Asian countries have been considering the openness of the capital account.Capital account convertibility begins with liberalization of capital account by the Governments and their respective Central Banks of the nations.

CAPITAL ACCOUNT CONVERTIBILITY
By capital account convertibility, we mean “the freedom to convert the local financial assets into foreign financial assets and vice-versa at market determined rates of exchange. This is associated with changes of ownership in foreign/domestic financial assets and liabilities and embodies the creation and liquidation of claims on, or by the rest of the world”.Thus in simpler terms, it means that irrespective of whether one is a resident or non-resident of India, one’s assets and liabilities can be freely (that is without any permission of any regulatory authority) denominated in any currency and easily interchanged between that currency and the rupee.CURRENT ACCOUNT CONVERTIBILITYOn the other hand current account convertibility refers to convertibility required in case of transactions relating to exchange of goods and services, money transfers and all those transactions that are classified under current account.

ASPECTS OF CAPITAL ACCOUNT ACCOUNTABILITY
Capital account convertibility includes two aspects-1. Inflow of funds into the economy; and2. Outflow of funds from the economy.It is basically removing the restrictions of international and is the feature of developed countries.Convertibility would generate massive flows of funds into and out of India, as Indians and foreigners modify their portfolios to reflect new investment possibilities. Even if all policies in terms of financial regulation are correctly orchestrated, volatility in the dollar-rupee will innately increase. But given the tradition of government controls in India, we are all used to expecting low volatility of the rupee-dollar. This raises the urgency of developing futures and options on the dollar-rupee, which would give people a method for managing these risks.

CAPITAL/CURRENT ACCOUNT CONVERTIBILITY IN INDIAN CONTEXT

At the moment India has implemented current account convertibility. It means one can export and import goods and services and can make the payment of these services rendered very easily. But capital account convertibility is not fully implemented in India, there is partial conversion. An Indian individual or institution is allowed, subject to certain conditions, to invest in foreign assets. Foreigners too are similarly allowed to invest in India. Capital account convertibility is considered to be one of the major features of a developed economy. It helps attract foreign investment. It offers foreign investors a lot of comfort as they can re-convert local currency into foreign currency anytime they want to and take their money away. At the same time, capital account convertibility makes it easier for domestic companies to tap foreign markets.

WHAT INDIAN GOVERNMENT IS DOING?
To see into the matter, till date only one committee under consultation of Indian Government has been set up. A committee on capital account convertibility, setup by the Reserve Bank of India (RBI) under the chairmanship of former RBI deputy governor S.S. Tarapore to "lay the road map" to capital account convertibility. At the moment it is still a report and central bank has to accept the recommendations of the committee.The Committee had also laid down certain pre-conditions for implementing the reforms. But nothing much happened during this phase. Then, came the phase subsequent to 1999-2000 when there was a phenomenal increase in foreign exchange reserves of more than $41 billion cumulatively. In 2002-03 alone, there was a quantum jump in reserves by $21.3 billion. This significant improvement in the external position is, to quote the Reserve Bank of India (RBI), "unprecedented in India's history".

EFFECT ON INDIVIDUAL
As most of us know, resident Indians cannot move their money abroad freely. That is, one has to operate within the limits specified by the Reserve Bank of India and obtain permission from RBI for anything concerning foreign currency.For example, the annual limit for the amount you are allowed to carry on a private visit abroad is $10,000: of which only $5,000 can be in cash. For business travel, the yearly limit is $25,000. Similarly, you can gift or donate up to $5,000 in a year.The RBI limit raises the limit if you are going abroad for employment, or are immigrating to another country, or are going for studies abroad: the limit in both these cases is $100,000.You are also allowed to invest into foreign stock markets up to the extent of $1,00,000 in a year.For the average Indian, these 'limits' seem generous and might not affect him at all. But for heavy spenders and those with visions of buying a house abroad or a Van Gogh painting, it will mean a lot.But with the markets opening up further with the advent of capital account convertibility, one would be able to look forward to more and better goods and services.

WHAT INDIA IS GOING GAIN FROM CAC?
If India goes for fuller Capital Account Convertibility then it is going to prove beneficial for her in the following terms:a) As there will be inflow of capital, then it can be used for overall development of the country.b) Forex inflows can be used for specific purposes like infrastructural development which is o utmost importance. c) It can be used developing the country’s untapped human resources which again used for the country’s development.d) It will increase the country’s goodwill in comparison to other developed countries of the world.e) It will increase the country’s foreign reserve also which can put to use for different purposes like balance payment, investment in foreign country, etc.f) Indian investors can divert their surplus saving to other investments in foreign countries.g) During any financial crisis, India could be in safe position as the country’s money which is invested in foreign countries can be used in the country as there will be flexibility for Indian investor s too.

WHAT INDIA CAN LOOSE?
Till date India has implemented Current Account Convertibility and now she is on the path for the fuller Capital Account Convertibility. But India should take care of the following aspects before doing so:a) As there will huge inflow without any hindrance from the apex financial system i.e. Reserve Bank of India, it can pose threat to country’s financial security. As it belongs to the foreign country.b) As there can sudden capital inflow so the reverse can also happen, that is there is provision for sudden withdrawal of the same without taking the permission of the RBI.c) Withdrawal can lead to “HERD BEHAVIOUR” of the investors whereby if one will start to withdraw from the country, others will follow resulting in capital flight.d) If not taken proper care can lead to a “Financial Crises” as well.

RECOMMENDATIONS
In spite of several threatening that India is facing and can face with the implementation of the fuller Capital Account Convertibility, she can go for the same because it is evident from the advantages that it can do wonders to our country. But with that there are certain aspects which have to be paid attention:- The country should not be pushed to a situation, where it will be too much dependent upon other countries for investment.- There should be proper ascertainment of the capital requirement in the country so as to avoid any financial crisis.- The Indian Government should make some provision to have capital inflow in the country through this channel as well as capital outflow again to prevent the country from any sudden shocks which can be positive as well as negative.- Capital inflow from this channel should not that much which can lead to IDLE capital in the country.Thus if Indian Government goes very cautiously for fuller Capital Account Convertibility, then the country can get much more opportunity to shine and can make use of its each and every available resource. India can fulfill its financial requirement through other channels as well, but it seems to be much more smooth way in terms of attracting the foreign investors to our country. Also Indian investors can go and make earnings.Thus, now India after successful implementation of Current Account Convertibility should move forward and implement fuller Capital Account Convertibility in a phased manner if not at a stretch. If India will take such step then very surely it will achieve and touch the much awaited double digit GDP growth rate.

WrittenBy:
Minakshi Karan
Isha Madan