About: Capital account convertibility (CAC) means that capital flows – flows of portfolio capital, direct investment flows, flows of borrowed funds and dividends and interest pay¬able on them – is freely convertible into foreign exchange and vice-versa at market determined exchange rate. The Tarapore Committee defined CAC as the freedom to convert local financial assets with foreign financial assets and vice-versa at market determined rates of exchange and mentioned the following as its benefits:
- Availability of large funds to supplement domestic resources and thereby promote economic growth
- Improved access to international financial markets and reduction in cost of capital
- Incentive for Indians to acquire and hold international securities and assets
- Improvement of the financial system in the context of global competition
