The rupee was made convertible on the current account of the balance of payments in ______
Show answer & explanation
Correct answer: B
Explanation
The correct answer is Option 2: August 1994.
Explanation:
- The Indian Rupee was made fully convertible on the Current Account of the Balance of Payments (BoP) in August 1994.
- Meaning of Convertibility: It implies that for the purpose of foreign trade (the import and export of goods and services), the Indian Rupee can be freely exchanged into foreign currency (such as the US Dollar) without any government restrictions.
- Historical Context: Following the economic reforms of 1991 (the LPG Policy), India gradually began the process of liberalizing its currency. Convertibility on the trade account was introduced in 1993, and in August 1994, this was extended to cover the entire 'Current Account.'
- Significance: This facilitated foreign trade and enabled the Indian economy to integrate more effectively with global markets.
- Capital Account: It is important to note that, in India, the Rupee is not yet fully convertible on the Capital Account (which covers items such as investments, loans, etc.).
Important Facts for Upcoming Examinations (Quick Revision):
Question: Which committee was constituted to examine Capital Account Convertibility?
Answer: The Tarapore Committee (1997 and 2006).
Question: Which exchange rate system is currently in force in India?
Answer: Managed Floating Rate.
Question: In which year was FERA replaced by FEMA?
Answer: 1999 (FEMA came into effect on June 1, 2000).