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Capital account convertibility refers to the freedom to convert domestic currency into foreign currency and foreign currency into domestic currency for transactions involving the capital account of the balance of payments. It means that residents and non-residents are allowed to freely move capital across national borders for purposes such as investment, borrowing, lending, acquisition of financial assets and repayment of foreign obligations. Capital account convertibility is different from current account convertibility, under which foreign exchange can be freely used for international trade in goods and services, remittances and other current transactions. India achieved current account convertibility in 1994, but it has followed a cautious and gradual approach towards full capital account convertibility. The importance of capital account convertibility for India can be understood in the context of its increasing integration with the global economy. Foreign trade and international investment are closely connected. A country that participates extensively in international trade requires an efficient foreign exchange system and access to international capital. Capital account convertibility can facilitate the movement of foreign capital into India and can also allow Indian companies and investors to invest abroad more freely. It can therefore support internationalisation of Indian businesses, expansion of exports and integration with global production networks. The issue of capital account convertibility became particularly important after the economic reforms of 1991. Before 1991, India maintained extensive restrictions on foreign exchange _______ _____ _____ _______ ______ _______ __________ __________ ________.
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