UPSC Prelims 1998 · General Studies

Question 93: Economy and Social Development

Capital Account Convertibility of the Indian Rupee implies

athat the Indian Rupee can be exchanged by the authorised dealers for travel

bthat the Indian Rupee can be exchanged for any major currency for the purpose of trade in goods and services

cthat the Indian Rupee can be exchanged for any major currency for the purpose of trading financial assets

dNone of the above

AnswerThe answer is (c).

Capital account convertibility means freedom to convert the rupee into foreign currency for capital transactions: buying or selling financial assets such as shares, bonds and property abroad, and moving capital in and out. India has had current account convertibility since 1994, which covers trade in goods and services and travel. The Tarapore Committee set a road map for capital account convertibility in 1997.

Why each option is right or wrong

(a) Exchange for travel is a current account transaction.
(b) Exchange for trade in goods and services is current account convertibility.
(c) Right: exchange for trading financial assets is capital account convertibility.
(d) Wrong, since (c) correctly describes capital account convertibility.

Explanation: written by UPSC Grade, not by UPSC.

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Source: UPSC, Civil Services (Preliminary) Examination 1998, General Studies. UPSC's own paper isn't online; the words are from a published compilation. The paper on upsc.gov.in.