Capital Account Convertibility (CAC) is not just the currency convertibility freedom, but more than that, it involves the freedom to invest in financial assets of other countries.
The Committee on Capital Account Convertibility (1997, Chairman SS Tarapore) in its report has given a working definition for the CAC which is as following:
“CAC refers to the freedom to convert local financial assets into foreign financial assets and vice versa at market determined rates of exchange. It is associated with changes of ownership in foreign/domestic financial assets and liabilities and embodies the creation and liquidation of claims on, or by, the rest of the world.”
Capital account convertibility is thus the freedom of foreign investors to purchase Indian financial assets (shares, bonds etc.) and that of the domestic citizens to purchase foreign financial assets.
It provides rights for firms and residents to freely buy into overseas assets such as equity, bonds, property and acquire ownership of overseas firms besides free repatriation of proceeds by foreign investors.
India currently provides for partial capital account convertibility.
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