What are the advantages of current account convertibility of rupee? What are its long-term implications?
The Articles of IMF stipulates that members accepting current account convertibility should (i) have no restrictions on current payments and (ii) avoid discriminatory currency practices. Current account convertibility has been defined as the freedom to buy or sell foreign exchange for the following international transactions: (i) All payments due in connection, with foreign trade, current business, including services and normal short-term banking and credit facilities. (ii) Payments due as interest on loans and as net income from the investments. (iii) Payments of moderate amount of amortization of loans or depreciation of direct investments and (iv) Moderate remittances for family living expenses. Liberalization of exchange control regulations announced by Reserve Bank are related to exchange earners foreign currency accounts, basic travel quota. studies abroad, gift, remittance, donations and payments of certain service rendered by foreign-parties.
When more relaxation on current account payments were announced, interest accrued under foreign currency, non-repatriable, rupee deposit scheme (FCON) was made eligible for repatriations and repatriations of investment income by .non-resident Indians was allowed in a phased manner over a 3 year period. After the country moved to single market determined exchange rate system in March 1993, the rupee exhibited good stability and for .over two year after March the rupee-dollar rate remained steady. As a result, India’s competitiveness in international markets. was substantially eroded.