INDIA AND CAPITAL ACCOUNT CONVERTIBILITY : A JOURNEY OF PROGRESS AND MENACE

Abstract

India has vigilantly opened up its capital Account since the early 1990s as policymakers realised that domestic savings and
taxes are inadequate to cater countrys huge investment needs. Therefore indigenous savings should be supplemented with
overseas funds for the future growth of the nation. Hence, India sustained with the policy of moving slowly rather than
taking a single leap in accomplishing full convertibility, for the consequences would be disastrous if anything goes off beam.
It has been so observed that India has adopted a discriminatory approach depending upon the sensitivity and economic
importance of the various forms of capital flows. Over the time, India has been able to draw reasonable sum of foreign
investment and there has been a tremendous growth in the transactions allied to foreign exchange market. Indian companies
and retail investors too have made investment abroad. India has received foreign money in the form of FDI, ADRs,
GDRs, ECB, Bonds, and FII etc. The set of laws related to various components of capital accounts have been revised from
time to time based on the economic conditions, global events and needs of the nation. Foreign capital flows have benefitted
the country in multiple ways. Forex reserves, Balance of Payment surplus, bullish stock market or growth of MNCs and
market all are the upshots of international finance. In recent times, there has been an ongoing turmoil in the developed
countries of the world. India too is experiencing the heat of global contagion. This paper explores the impact of measures
taken towards the liberalisation of capital account in the milieu of unfavourable events globally and attempts to reach at
suitable conclusions and solutions.