From Current account convertibility to full convertibility – a milestone achieved
There was a time in our country that the foreign exchange reserves were so thin and depleted that our government could never think of even partial convertibilit of rupee. People could not buy shares or assets outside the country such stringent were the regulations. With time, the foreign exchange reserves have increased much attributable to the export of manpower and remittances from aborad and the steady economic growth in the recent past.
India has always followed strict controls and regulations when it comes to foreign exchange transactions.
I remember an incident told to me by my father. He said that once he wanted to buy a book of a foreign author for which $ 15.00 had to be remmited aborad and he had to go to the Reserve Bank of India to seek approval. The RBI asked him to fill around 8-9 forms for the same and in the end he was denied the approval saying that similar kinds of books are already available in India by indian authors…can you believe that…??
Such stringent were the rules enacted under Foreign Exchange Regulations Act, 1973.
But with time the situation improved as the government moved ahead with liberalisation. In 1992, the then Finance Minister Mr Manmohan Singh allowed current account convertibility of rupee – wherein the exporters and importers where allowed a free conversion of rupee. But still no one was allowed to purchase any assets abroad. Then in 1994, the exchange rate of Ruppee was made market determined and not the one fixed by the government.
Major changes came with the enactment of Foregin Exchange Management Act, 2000 which substituted the much dreaded FERA,1973. This law shifted its focus from conservation of foreign exchange to facilitating trade and payments.
Now time for another landmark development. On monday, our Prime Minister Mr Manmohan Singh asked for a relook at the capital account convertibility of rupee. This am sure would make the proponents of globalisation a very happy lot.
But what exactly does capital account convertibility of rupee means???
CApital Account Convertibilty means that rupee can now be freely convertible into any foreign currencies for acquisition of assets like shares, properties and assets abroad. Further, the banks can accept deposits in any currency.
At present, Indian rupee was partly convertible on current account. It provided flexibility to buy or sell foreign exchange for specific activities like payments for trade related activities, interest payments, remitances, business expenses etc. Further, an individual was allowed to buy shares worth $ 25,000 per anumn only.
India has come a long way from the FERA, 1947 to FERA,1973 and now to FEMA,2000. It has seen the days from non-convertibility of money to partial convertibility of money. Now, after the instructions from the PM, the finance minister Mr P. Chidambaram said that RBI and centre shall announce steps for greater convertabilty of rupee. This reform shall mean a lot for our contry’s development and growth plus it shall mark a new era in terms of globalisation and liberalisation. For an economy which was so close, such a step is indeed a landmark – a mile stone acheived. икони