finalppt currencyconvertibility 111003105349 phpapp02(1)

8/10/2019 Finalppt Currencyconvertibility 111003105349 Phpapp02(1)

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Current andcapital account

ConvertibilityPresented by-: JOGINDERRoll no-: 16


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Currency Convertibility

What it is ?Convertibility essentially means te ability

o! residents and non-residents toe"can#e domestic currency !or !orei#n

currency$ %itout limit$ %atever be te&ur&ose o! te transactions'

Types Of Currency Convertibility. (ully convertible currency'

Partially convertible currency'

Non-convertible currency

'


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RupeeConvertibi

lity


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Current Account Re!ers to currency convertibility re)uired in

case o! transaction relatin# to e"can#e o!#oods and services$ money trans!er and alltose transaction tat are classi*ed in

current account +ransactions relatin# to:

- E"can#e o! #oods and services - ,oney trans!ers

- +ransactions tat are classi*ed in teCurrent ccounts'

In .ort$ Current account includes alltransactions$ %ic #ive rise to or use o! our

National Income'


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Current AccountTransactions

All imports and exports of merchandise.

Invisible Exports and Imports

Inard private remittances !to " from#

$ension payments !to " from#

%overnment %rants !both ays#


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Current Account Convertibility

Indian scenario - !ully convertible'

(ull !reedom to bot residents and non-

residents' R/I as &laced a ca& in creation o! a

ca&ital asset

(reedom in res&ect o! &ayments andtrans!ers !or current internationaltransactions'

C i l


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Capital accountconvertibility

Refers to convertibility re&uired in the

transaction of capital 'o that are classi(ed

under the capital account balance of payment

In'os and Out'os of capital.

)orroin* from or +endin* to aboard.

,ales and $urchase of securities aboard.


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Capital AccountTransactions

Ca&ital Direct (orei#n

Investments'

Investment in securities'

Government 0oans' .ort-term investments'


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PortfolioInvestment'

.tocs$ /onds$ /an

0oans'

Direct

Investment.

Real estateProduction

facilities

Equityinvestment.

Other

investment.

Holdings in

loans

BankaccountsCurrencies

Capital Account Transactions

Classification


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Currently Restrictions : Capital Account

0imits to com&anies borro%in# abroad'

Restriction on !orei#ner investin# in India'

Restriction on amount tat (II can old'

Purcasin# a com&any is allo%ed but limite"it on te amount tat can be send'

Global Diversi*cation o! ouseold

&ort!olio is &ractically non-e"istent'


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Reasons -avorin* -inancialOpenness " CAC

Diversi*cation

NRI Remittances

(orei#n Investment

Catalyst !or *nancial maret$ institutionaldevelo&ment$ com&etition$ ne%tecnolo#ies 2 disci&line macro-

economic &olicies' Reduction in te si3e o! /lac money'

Induces com&etition a#ainst Indian*nance'


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Reasons favorin* Restrictions

Good times- ,ore in4o%5 /ad times-,ore out4o%'

,isallocation o! Ca&ital in4o%s'

E"&ort o! domestic .avin#s'

Entry o! (orei#n bans can create

ne)ual &layin# *eld' 7i#ly volatile international *nance

8ot money9- 7i#er s&eculation'


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Tarapore committee Committee on ca&ital account credibility$ set u&

by R/I8Reserve /an o! India9 under tecairmansi& o! !ormer R/I de&uty #overnor.'.' +ara&ore'

Economists .urit . /alla$ , G /ide$ R 7 Patil$

; Ra%ade and it Ranade %ere temembers o! te Committee'

+e re&ort submitted by tis Committee in teyear 1


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Reasons for the introduction of CAC in India

It%as meant to ensure total *nancial mobility in te country

It also aimed in te e@cient a&&ro&riation or distribution o!international ca&ital in India

$re / conditions

+e *scal de*cit needs to be reduced to A'B o! te GDP

In4ation rates need to be controlled bet%een A-B

Non-&er!ormin# assets 8NPs9 need to be brou#t do%n to B

Cas Reserve Ratio 8CRR9 needs to be reduced to A

monetary e"can#e rate band o! &lus minus B sould be

instituted

Contd...


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elar committee

+is committee is eaded by viayelar' +is committee em&asison *scal consolidation'

(iscal consolidation

(iscal consolidation is a

reduction in te underlyin#*scal de*cit' It is not aimed ateliminatin# *scal debt'


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te #overnment !orms annual bud#et %icincludes its income and e"&enses' *scalde*cit is %en te #overnment as to borro%

money to meet its e"&enses '(DFE -INCO,EHen te (D starts to increase$ $ year a!teryear $ as is te case$ te debt burden o! te

#overnment increases''' ten te #ov' tries to

rei#n in its debt by ado&tin# (iscalConsolidation metods'''''i'e ' s&end less and%isely


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Observation o! elarcommittee

7i# *scal tends to

I' 7i# in4ation'

II'Em&loyment and in4ation be&olitically disability !or te#overnment'


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7o% to increase incomin#money


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Increase collection o! Direct+a"

Revie% te D+C bill'

PN and ID card mandatory'

Create &ro*le' Car#e interest on ta" de!aulter'


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7o% to decrease out#oin#money

Reduce subsidy'

Car#e !ocus o! #overnment'


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0i1erence beteen current andcapital account convertibility

capital

ca&ital account re!ersto ca&ital trans!ers anddis&osal o! 4o%&roduced non *nancialasset'

Ca&ital accountconvertibility allo%s !ree

movement !rom localcurrency in !orei#ncurrency and vice aversa'

current

current accountre!ers to #oods and

services income andcurrent trans!ers'

current accountconvertibility allo%

!ree in4o% and out4o%!or all &ur&oses oter&ur&oses sucinvestment loans'


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finalppt currencyconvertibility 111003105349 phpapp02(1)

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