Full formBanking & Finance
CACstands forCapital Account Convertibility
Full Form of CAC
What is CAC?
Capital Account Convertibility (CAC) refers to the freedom to convert domestic financial assets into foreign assets and vice versa at market-determined exchange rates. In India, CAC is a key policy issue managed by the Reserve Bank of India (RBI). It allows residents and businesses to freely invest abroad, raise funds internationally, and repatriate profits without prior approval. India currently follows a partial capital account convertibility framework, meaning certain transactions—like foreign direct investment and portfolio investment—are permitted, while others, such as outward remittances by individuals, have limits. Full CAC is not yet adopted due to concerns about macroeconomic stability and vulnerability to capital flight. The concept is discussed in the context of the Tarapore Committee reports (1997 and 2006), which laid out a roadmap for gradualism. CAC is frequently examined in UPSC, RBI Grade B, and NABARD exams, where candidates must understand its implications for exchange rate management, monetary policy autonomy, and financial integration. It contrasts with current account convertibility, which India fully adopted in 1994 under IMF Article VIII. The debate around CAC often resurfaces during periods of high forex reserves or external shocks.
CAC का फुल फॉर्म
पूंजी खाता परिवर्तनीयता
Example
The RBI Governor reiterated that full capital account convertibility will be considered only after achieving a comfortable fiscal deficit and low inflation.
CAC — frequently asked questions
What is the full form of CAC?
The full form of CAC is Capital Account Convertibility, which refers to the freedom to convert domestic financial assets into foreign assets and vice versa.
Why is full capital account convertibility not implemented in India?
India has not fully implemented CAC due to risks of capital flight, exchange rate volatility, and loss of monetary policy autonomy, preferring a gradual approach as recommended by the Tarapore Committee.
How is capital account convertibility different from current account convertibility?
Current account convertibility allows free conversion for trade in goods and services, while capital account convertibility deals with cross-border movement of financial assets and investments.