The freedom to convert the domestic currency into foreign currency, and back, for capital-account transactions such as investment, borrowing, and the buying and selling of financial assets, without government restriction.
- It covers cross-border capital flows: foreign investment, loans, and asset transactions, as distinct from current-account flows (trade and remittances), which India freed fully in 1994.
- India has only partial, managed capital account convertibility, keeping controls on certain flows to limit volatility; see concept current vs capital account convertibility.
- The two Tarapore Committees (1997 and 2006) set out preconditions and a phased roadmap, such as a low fiscal deficit, low inflation, and a sound banking system.
- Full convertibility raises the risk of sudden, destabilising capital flight, so India has liberalised cautiously; see concept hot money.
- It is governed by the Foreign Exchange Management Act (FEMA), 1999, administered by the RBI.
The definition (free conversion for capital flows), India's partial status, the Tarapore Committee roadmap, and FEMA, 1999, are standard external-sector facts.
India has full current account convertibility (since 1994) but only partial capital account convertibility; the capital account is the controlled one because of capital-flight risk.
Free conversion of currency for capital flows; India is only partially convertible, guided by the Tarapore Committee roadmap under FEMA, 1999.