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India on the verge of achieving capital account convertibility, says RBI deputy governor

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RBI feels India is close to achieving its capital account convertibility target

Reserve Bank of India (RBI) Deputy Governor T Rabi Shankar said on Thursday that India is on the verge of achieving its long-term goal of capital account convertibility.

Addressing an event of the Forex Dealers Association, Shri Shankar said that the capital account convertibility rate has increased in the country.

A country’s capital account records the net change in its foreign assets and liabilities, while convertibility refers to the ability to convert domestic currency into foreign currencies and vice versa to pay for balance of payments (BOP) transactions.

BoP refers to the financial transactions carried out by a country with other countries across the world during a particular period, usually a year.

“India has come a long way in achieving increasing levels of convertibility on the capital account. It has achieved desired results for its policy choices in terms of achieving a stable structure of foreign capital inflows,” he said.

Simultaneously, he said that the country is on the verge of witnessing some fundamental changes in the sector with the expectation of greater market integration in the near future.

Shri Shankar said that the rate of capital account convertibility will also accelerate through measures such as free non-resident access to credit and greater market integration.

With this growth comes the responsibility of ensuring that such flows are effectively managed with the right combination of capital outflow measures, macro-prudential measures and market interventions, Mr. Shankar said.

On the role of RBI, he suggested that it is limited to taking precautionary measures.

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