Consider the following statements regarding full ‘Capital Account Convertibility’:
1. Foreign companies can easily invest in India.
2. NRIs would increase the flow of foreign exchange remittances.
3. Excessive capital inflow could lead to worsening of balance of trade.

Which of the statements given above are correct?
(a) 1, 2 and 3
(b) 1 and 2 only
(c) 2 and 3 only
(d) 1 and 3 only

Question

Consider the following statements regarding full &lsquo;Capital Account Convertibility&rsquo;:
1. Foreign companies can easily invest in India.
2. NRIs would increase the flow of foreign exchange remittances.
3. Excessive capital inflow could lead to worsening of balance of trade.

Which of the statements given above are correct?
(a) 1, 2 and 3
(b) 1 and 2 only
(c) 2 and 3 only
(d) 1 and 3 only

ONLiNE UPSC · Accepted Answer

Statement 1 is correct: Full CAC would mean stronger capital inflows into domestic projects (higher investment) thus supplementing domestic resources and leading to higher economic growth. Indian companies would be able to access overseas funds, while the foreign companies can also easily invest in India.

Statement 2 is correct: It could incentivize Indian workers living abroad and NRIs to increase foreign exchange remittances and thus reduce illegal remittances.

Statement 3 is correct: At the same time, excessive capital inflow can lead to appreciation of the currency leading to worsening of balance of trade.

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Capital Account Convertibility

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M Question 1	⏱ 0
Consider the following statements regarding full ‘Capital Account Convertibility’: 1. Foreign companies can easily invest in India. 2. NRIs would increase the flow of foreign exchange remittances. 3. Excessive capital inflow could lead to worsening of balance of trade. Which of the statements given above are correct? (a) 1, 2 and 3 (b) 1 and 2 only (c) 2 and 3 only (d) 1 and 3 only