Convertibility is the freedom to convert the domestic currency into foreign currency and back at market rates: current account convertibility covers trade and income flows, while capital account convertibility covers investment and asset flows.
- India adopted full current account convertibility in 1994, allowing free conversion for trade in goods and services, remittances, and other current transactions.
- Capital account convertibility (free conversion for investment, borrowing, and asset transactions) is still partial and managed in India, with controls on certain flows.
- The Tarapore Committees (1997 and 2006) laid out a phased roadmap and preconditions for moving towards fuller capital account convertibility.
- Full capital account convertibility raises the risk of volatile capital flight, so India has liberalised it cautiously; see concept fdi vs fii.
- It is governed under the Foreign Exchange Management Act (FEMA), 1999, administered by the RBI; it links to the concept balance of payments.
The 1994 current account convertibility, the partial capital account convertibility, the Tarapore Committee roadmap, and FEMA, 1999, are standard external-sector facts.
India has full current account convertibility (since 1994) but only partial capital account convertibility; the two are not the same and the capital account is the controlled one.
Current account convertible since 1994; capital account only partially convertible; Tarapore Committee roadmap under FEMA, 1999.