The Reserve Bank of India is in consultations with the government to double the limit for capital account transactions for individuals to $250,000 per financial year.
Currently, under the Liberalised Remittance Scheme, all resident individuals, including minors, are allowed to freely remit up to $125,000 per financial year for any permissible current or capital account transaction or a combination of both.
Capital account convertibility means that there is no restriction on conversion of the domestic currency into a foreign currency to enable a resident to acquire a foreign asset. This is also true for conversion of a foreign currency to the domestic currency to enable a non-resident to acquire a domestic asset.
Current account convertibility refers to freedom in respect of payments and transfers for current international transactions.
Under the scheme, resident individuals can acquire and hold shares or debt instruments or any other assets, including property outside India, without prior RBI approval. Individuals can also open, maintain and hold foreign currency accounts with banks outside India to carry out transactions permitted under the scheme. In a speech delivered at a management institute in Mangaluru, G Padmanabhan, Executive Director, RBI, said: “As far as individuals are concerned, I must add the caveat that any liberalisation (on capital account) for individuals has to be guided and circumscribed by the spectre of ‘black money’.
Progressive increase “Even with those limitations, we have progressively increased the limit for capital account transactions for individuals on a per annum basis and are in consultations with the government to increase it to $250,000 per year per individual.”
The experience so far has been that most of this is used for permissible current account transactions, presumably because of the ease.
Padmanabhan observed that the process (capital account liberalisation) has been mostly in one direction; capital account transactions have been progressively liberalised without any significant pause or regression.
Important juncture “We, as I stated earlier, stand at a juncture when the debate (on capital account convertibility) has gathered some momentum again and the issue has been brought to the front-burner with some apparent imminence in attaining the goal,” he said.
He underscored that greater opening of the capital account is inescapable as the economy grows further and becomes global.
“While there are risks associated with full capital account convertibility, resisting liberalisation over an extended period may prove futile and counterproductive. As the economy gets more globalised, it will become harder to maintain closed capital accounts.
“…So, India needs to continue moving towards full capital account convertibility. There is simply no escape from it,” Padmanabhan explained.