Meaning of Convertibility of Rupee Convertibility of rupees is known as freedom of exchange of rupee with other all international currency.

It means that rupee can covert in USA dollars more easily and USA dollars can convert in Indian currency for buying and selling of goods and services. after study everything, I am writing, "it is conspiracy to lower the value of Indian currency that in real sense. In 1996, there were just Rs. 38 for every one dollar but after liberalized convertibility of rupee, one dollar exchange rate has reached up to Rs. 45 in 17th Jan. 2011. When convertibility of Rupee was started, it was claimed that our export will increase because our Indian companies will easy to trade in foreign country due to easy exchange without any govt. restriction. But, it opens doors for importing useless things and moreover it is very sad for India that gold is not make as standard exchange currency. China is smart than India, under his new foreign exchange policy, convert all his foreign exchange in gold. Now, his Chinese yuan is equal to Indian Rs. 6.89. * Meaning of Partial Convertibility of Rupee Partial convertibility of Rupee was started in 1992 for current account. In simple word, there is no control of Indian currency official. Any foreign company can do business and can go to his country with this profit after exchanging all Indian currency in their foreign currency. For example, According to its Directors Report, a public document filed with Indias Registrar of Companies, Google India Private Ltd reported revenues of Rs. 779.34 crore (around $172.03 million at current rates), over the 15 month period from Jan 2009 to March 2010. For the same period, it reported a profit after tax of 97.96 crore ($21.62 million), and received foreign exchange of Rs. 666.25 crore, with a foreign exchange out go of Rs. 304.24 crore. In this, example, we see that there is no our control our one foreign currency. From economic point of view, if any country has largest amount of other countries currency, that country will become economically sound. Suppose, if India has not USA dollars for exchanging Rs. 304.24 crore to Google India Pvt. Ltd, at that time, India has to take loan of same USA Dollars from USA and will pay interest on it. So, it will increase adverse balance of payment. It is true, with partial convertibility of Rupees, investment in foreign country has become easy but it is also harmful for India, because same investment should be in India instead any other country. All companies think the benefit of their residential country from where they are operating their business. So, for India's interest, we have to make some strict rules for stopping outflow of fund on the the

name of convertibility of rupee or liberalisation. * Meaning of Full Convertibility of Rupee of Capital Account Suppose, Mr. ABC is company of USA, it can buy any property in India by full conversion his currency in Indian currency.
What is full convertibility of rupee on capital account? Is the Indian economy ready to switch over to such full convertibility? Convertibility of the domestic currency is one of the prerequisite for complete globalisation of any economy. Along with de-controls, freer movement of goods and services, removal of tariff and non-tariff restrictions and easier mobility of the workforce, convertibility is one of the important cornerstones of the process of globalisation and economic reforms. Current account convertibility is already there and the stringent controls of pre-nineties over the foreign exchange have also been relaxed to a great extent. The stringent Foreign Exchange Regulation Act (FERA) was replaced by a relaxed Act called Foreign Exchange Management Act (FEMA), making the movement of foreign exchange easier. Resident Indians and companies now have access to foreign exchange for various purposes, including education and travel. They can also receive and make payments in foreign currencies on trade account. Full convertibility implies that the existing restrictions on the capital account would also be withdrawn. Corollary of this step would be that the domestic assets, including the real estate and stocks, could be sold to the foreigners and the payments in foreign currency could be received in the country without prior regulatory clearances. Some steps have already been taken to facilitate the full capital account convertibility in the country. Foreign exchange has been allowed to flow into Indian stock markets through registered institutional investors. In addition, many categories of the resident Indians have been allowed to open foreign currency accounts abroad. Indian companies have also been making overseas acquisitions for which they have been given access to foreign currency resources. It would, however, be wrong to presume that full convertibility on the capital account would result in lifting of all the restrictions. Even the developed countries like the USA block foreign investment in some of the sectors. Despite the government decision in this regard, it has not been easy for the non-resident Indians to acquire property and real estate in the country. The government of India, though has allowed Direct Foreign Investment (FDI) in most of the fields, yet certain caps have been put by the government on the FDI in some of the sectors. Most of these restrictions may continue even after the capital account convertibility is introduced. Benefits would be in terms of more flow of foreign capital into the economy, resulting in higher investment and the resultant growth rate. Further, the financial and capital markets would bring more profits to the domestic investors. There are certain prerequisites for introduction of capital account full convertibility. The economy must be nearer to the global standards in the matter of fiscal deficit, inflation rate, interest rates, foreign exchange reserves, etc. It is said that the economy can be said to be ripe for capital account convertibility only if interest rates are low and de-regulated and the inflation rate in the three consecutive years had been around three per cent. In addition, fiscal deficit should be low at around 3 per cent and foreign exchange reserves should be reasonably high. Further, the economy has to be in good shape, as full convertibility would result in bringing in the instabilities and fluctuations of the outside world into the economy, as it gets more connected to the outside world. Further, imperfections in the economy, like the urban-rural dichotomy and difference in the growth rates in various sectors like agriculture and industries, as well as services, must be removed.

Considering the above prerequisites it appears that the Indian economy is not yet prepared for switching over to the capital account convertibility. The only requisites which have been met are reasonably high level of foreign exchange reserves, mostly deregulated interest rates and relatively good condition of the economy as a whole. In most of the other areas there is lot more to be done. Interest rates as well as the inflation rate are higher than the required levels. Further, the imperfections of the economy are glaring as the services and industrial sectors are booming, but the agricultural sector which employs over 65 per cent of the total work force, is growing at a much lower rate of 2 to 3 per cent per annum.

http://www.caclubindia.com/articles/convertibility-of-indian-rupee-1945.asp#.T9TGwLA_9e8

Convertibility can be related as the extent to which a country's regulations allow free flow of money into and outside the country. For instance, in the case of India till 1990, one had to get permission from the Government or RBI as the case may be to procure foreign currency, say US Dollars, for any purpose. Be it import of raw material, travel abroad, procuring books or paying fees for a ward who pursues higher studies abroad. Similarly, any exporter who exports goods or services and brings foreign currency into the country has to surrender the foreign exchange to RBI and get it converted at a rate pre-determined by RBI. After liberalization began in 1991, the government eased the movement of foreign currency on trade account. I.e. exporters and importers were allowed to buy and sell foreign currency, as long as the items that they are exporting and importing were not in the banned list. They need not get permission on a CASE TO CASE basis as was prevalent in the earlier regime. This was the first concrete step the economy took towards making our currency convertible on trade account. In the next two to three years, government liberalized the flow of foreign exchange to include items like amount of foreign currency that can be procured for purposes like travel abroad, studying abroad, engaging the services of foreign consultants etc. This set the first step towards getting our currency convertible on the current account. What it means is that people are allowed to have access to foreign currency for buying a whole range of consumable products and services. These relaxations coincided with the liberalization on the industry and commerce front - which is why we have Honda City cars, Mars chocolate bars and Bacardi in India. There was also simultaneous relaxation on the restriction on the funds that foreign investors can bring into India to invest in companies and the stock market in the country. This step led to partial convertibility on the Capital Account. "Capital Account convertibility in its entirety would mean that any individual, be it Indian or foreigner will be allowed to bring in any amount of foreign currency into the country and take any amount of foreign currency out of the country without any restriction." Indian companies were allowed to raise funds by way of equities (shares) or debts. The fancy terms like Global Depository Receipts (GDRs), Euro Convertible Bonds (ECBs), Foreign currency syndicated loans became household jargons of Indian investors. Listing in Nasdaq or NYSE became new found status symbols for Indian companies. However, Indian companies or individuals still had to get permission on a case to case basis for investing abroad.

In 2000, the forex policy was further relaxed that allowed companies to acquire other companies abroad without having to go through the rigmarole of getting permission on a case to case basis. Further, Indian debt based mutual funds were also allowed to invest in AAA rated government /corporate bonds abroad. This got further relaxed with Indians being allowed to hold a portion of their foreign exchange earnings as foreign currency, subject to a limit in the recent monetary policy in October 2002. In general, restrictions on foreign currency movements are placed by developing countries which have faced foreign exchange problems in the past is to avoid sudden erosion of their foreign exchange reserves which are essential to maintain stability of trade balance and stability in their economy. With India's forex reserves increasing steadily, it has slowly and steadily removed restrictions on movement of capital on many counts. The last few steps as and when they happen will allow an individual to invest in Microsoft or Intel shares that are traded on Nasdaq or buy a beach resort on Bahamas without any restrictions

ByRajat Goel Student- MBA IIPM, New Delhi

Read more: http://wiki.answers.com/Q/What_is_rupee_convertibility#ixzz1xU77Eurz