RBI Governor Shaktikanta Das says capital account convertibility will continue to be a process, rather than an event

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November 26, 2020 4:00 PM

It can be noted that capital account convertibility is a very sensitive subject as it deals with liberalisation of capital transactions into and out of a country. India, which started opening up on this front with the reforms of the early 1990s, is partially convertible right now with caps and other restrictions.

Markets were looking carefully at today’s policy to get a sense of where the balance across objectives will lie. And RBI made it all too clear, at least for now.Markets were looking carefully at today’s policy to get a sense of where the balance across objectives will lie. And RBI made it all too clear, at least for now.

India will continue to approach capital account convertibility as a process rather an event, Reserve Bank of India (RBI) Governor Shaktikanta Das said on Thursday. The central bank chief said the capital account is convertible to a great extent at present and enumerated the specifics on both inward and outward flows which are allowed.

It can be noted that capital account convertibility is a very sensitive subject as it deals with liberalisation of capital transactions into and out of a country. India, which started opening up on this front with the reforms of the early 1990s, is partially convertible right now with caps and other restrictions.

Capital account convertibility will continue to be approached as a process rather than an event, taking cognisance of prevalent macroeconomic conditions, Das said, speaking at an event organised by the Foreign Exchange Dealers’ Association of India (FEDAI).

He added that a long-term vision with short- and medium-term goals is the way ahead on this.
Das said foreign portfolio investment (FPI) in Indian debt markets has been expanded within calibrated macro-prudential norms and added that limits under the medium-term framework for investment by FPIs have been gradually increased and procedures rationalised.

At present, inward foreign direct investment (FDI) is allowed in most sectors and outbound FDI by Indian incorporated entities is allowed as a multiple of their net worth, he said, pointing out that there has been a liberalisation in the external commercial borrowing framework as well to include expanding eligible borrowers.

Internationalisation of financial markets can lower transaction costs with efficiency gains, he said. Over the last three decades, India has undergone a transformation from being a virtually closed economy to one that is globally connected and open to a much larger volume of international transactions and capital flows than before, he added.

Das said allowing banks in India to deal in the offshore rupee derivative markets was a major milestone towards opening up of the markets and added that the move is expected to achieve the objectives of reducing the segmentation between onshore and offshore markets and also reducing volatility.

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