Capital Account Convertibility (CAC) is not just the currency convertibility freedom, but morethan that, it involves the freedom to invest in financial assets of other countries.The Committee on Capital Account Convertibility (1997, Chairman SS Tarapore) in its reporthas given a working definition for the CAC which is as following:“CAC refers to the freedom to convert local financial assets into foreign financial assets andvice versa at market determined rates of exchange. It is associated with changes of ownershipin foreign/domestic financial assets and liabilities and embodies the creation and liquidationof claims on, or by, the rest of the world.”
Capital account convertibility is thus the freedom of foreign investors to purchase Indianfinancial assets (shares, bonds etc.) and that of the domestic citizens to purchase foreignfinancial assets.It provides rights for firms and residents to freely buy into overseas assets such as equity,bonds, property and acquire ownership of overseas firms besides free repatriation ofproceeds by foreign investors. India currently provides for partial capital account convertibility
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