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Abstract:
One of the hotly debated issues in the arena of Indian economics in recent years is the full capital account convertibility (CAC) that arises in the context when by the mid-1990s, the Indian economy improved its BoP and forex reserve position. Several countries in Asia and Latin America have adopted full convertibility of their currencies in pursuing the policy of liberalization and reform. Whether a time is right for India to move towards full convertibility is now a moot question, though the IMF and the several committees set up in India is in high favour to ensure a smooth transition towards fuller CAC enamoured with vibrant fiscal consolidation, a strong banking system, sustainable current account deficit and appropriate maintenance of external debt and forex reserves. And India meanwhile has already gone for an adventure in its way towards full CAC. The present paper gives an account of the basic theoretical issues that have arisen in international discussions on CAC and India's standpoint on this issue in particular. An attempt has also been made here to deal with the arguments for and against international capital mobility, with an assessment of how the Indian economy has been moving from exchange control to the gradual, step by step approach towards CAC.
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