What is Capital Account Convertibility? Is India ready for it yet?

India is on cusp of complete Capital Account Convertibility. While this may lead to rise in FPI inflows, there are a few red flags the govt and RBI need to address. Let’s look at those in this report

RBI deputy governor T Rabi Shankar recently stirred the policy corridors with a debate around Capital Account Convertibility. Speaking at an industry event, he said there was an effort to liberalise FPI debt flows further with the introduction of the Fully Accessible Route, which places no limit on non-resident investment in specified benchmark securities.

But what does Capital Account Convertibility mean?

In simple terms, a capital account keeps a record of all the transactions related to assets between India and other countries. This includes all kinds of investment assets like shares, debt, and property, or even corporate assets.

Currently, India has a partially convertible capital account policy. This is because an individual or high net-worth investor wanting to invest outside India can invest within an overall limit of $250,000 per financial year under the Liberalised Remittance Scheme for any permitted current or capital account transaction or a combination of both. This means, they can make investments to the tune of up to $500,000 in a calendar year.

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