Reserve Bank of India (RBI) Deputy Governor T Rabi Sankar on Thursday said market participants, particularly banks, will have to prepare themselves to manage the business process changes and the global risks associated with capital convertibility.
“India has come a long way in achieving increasing levels of convertibility on the capital account,” Sankar said at a conference organised Foreign Exchange Dealers’ Association of India. “It has broadly achieved the desired outcome for the policy choices it has made, in terms of achieving a stable composition of foreign capital inflow. At the same time, India is on the cusp of some fundamental shifts in this space with increased market integration in the offing and freer non-resident access to debt on the table,” he said.
“The rate of change in capital convertibility will only increase with each of these and similar measures,” Sankar said. “With that comes the responsibility to ensure that such flows are managed effectively with the right combination of capital flow measures, macro-prudential measures and market intervention…,” he said.
Convertibility refers to the ability to convert domestic currency into foreign ones and vice versa to make payments for balance of payments transactions. “Current account convertibility is the ability or freedom to convert domestic currency for current account transactions while capital account convertibility is the ability or freedom to convert domestic currency for capital account transactions.”