Module: General Practice
Q13: Consider the following statements regarding the convertibility of the Indian Rupee:
Assertion (A)- India follows a system of Full Convertibility on Current Account but only Partial Convertibility on Capital Account.
Reason (R)- Section 5 of FEMA allows reasonable restrictions on current account transactions, while Section 6 gives the RBI the power to prohibit or regulate capital account transactions to maintain macroeconomic stability.
Reason (R)- Section 5 of FEMA allows reasonable restrictions on current account transactions, while Section 6 gives the RBI the power to prohibit or regulate capital account transactions to maintain macroeconomic stability.
✅ Correct Answer: A
The Fundamental Architecture of FEMA: Assertion (A) is True: India accepted Article VIII of the IMF Articles of Agreement in 1994, making the Rupee fully convertible on the Current Account (trade/interest). However, Capital Account convertibility is still managed/partial (Full convertibility is a long-term goal, e.g., Tarapore Committee). Reason (R) is True and Explains A: The legal basis for this split is in FEMA.
Section 5 (Current Account): You have a right to draw forex unless the Central Government (via Rules) imposes a restriction.
The default is "Allowed." Section 6 (Capital Account): The default is "Regulated." The RBI (via Regulations) specifies permissible classes of transactions.
If it's not permitted, you generally cannot do it.
This legal structure creates the "Partial Convertibility" framework.
Section 5 (Current Account): You have a right to draw forex unless the Central Government (via Rules) imposes a restriction.
The default is "Allowed." Section 6 (Capital Account): The default is "Regulated." The RBI (via Regulations) specifies permissible classes of transactions.
If it's not permitted, you generally cannot do it.
This legal structure creates the "Partial Convertibility" framework.