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Current Account Convertibility
Current Account Convertibility
current international transactions. In other words, if Indians are allowed to buy only
foreign goods and services but restrictions remain on the purchase of assets abroad, it is
only current account convertibility. As of now, convertibility of the rupee into foreign
currencies is almost wholly free for current account i.e. in case of transactions such as
trade, travel and tourism, education abroad etc.
Covered in the current account are all transactions (other than those in financial items)
thatinvolve economic values and occur between resident non-resident entities. Also
covered are offsets to current economic values provided or acquired without a quid pro
quo. Specifically, the major classifications are goods and services, income,
and current transfers.
Goods
Services
2. Income
Compensation of employees covers wages, salaries, and other benefits, in
cash or in kind, and includes those of border, seasonal, and other non-resident
workers (e.g., local staff of embassies).
Investment income covers receipts and payments of income associated,
respectively, with residents’ holdings of external financial assets and with
residents’ liabilities to nonresidents. Investment income consists of direct
investment income, portfolio investment income, and other investment income.
The direct investment component is divided into income on equity (dividends,
branch profits, and reinvested earnings) and income on debt (interest); portfolio
investment income is divided into income on equity (dividends) and income on
debt (interest); other investment income covers interest earned on other capital
(loans, etc.) and, in principle, imputed income to households from net equity in
life insurance reserves and in pension funds.
3. Current transfers