economy : Why is rupee not fully convertible? And what does it means that rupee is not fully convertible?
Answer by Ramamurthy Guruvayurappan:
A currency is fully convertible, when there are no current account or capital account restrictions for free movement of funds into the country and out of the country. As there are lot of restrictions for free movement of funds from India and also into the country, Indian Rupee is not fully convertible.
India is still a developing economy and has lot of inherent weaknesses. We don't have surplus current account, meaning our exports and services earnings and other invisible exports are far less than imports. This always leads to pressure on Indian Rupee.
Ours is relatively closed economy, in the sense INR is not fully convertible. Typically when countries have opened their capital account, except a few occassions , countries have suffered financially. It may slow you down in good times, but it can be a protection during bad times.
But does not mean, you can be a partially closed economy always. You need to strengthen in all fronts and then open the economy towards taking the Indian Rupee fully convertible.