Question 60 from UPSC CSE 2015 - Economy

Question

Convertibility of rupee implies

Accepted Answer

Correct Option: C. freely permitting the conversion of rupee to other currencies and vice versa

Strategy: Focus on the core term 'convertibility of rupee' — it relates to exchanging rupees for foreign currencies without restriction. Option C pinpoints this exact meaning. Other options mix in unrelated ideas like gold conversion, market-determined value, or market development, which do not define currency convertibility. Prioritize factual understanding of the economic definition for direct selection.

Key Info: Currency convertibility denotes the freedom to convert a nation's currency into foreign currencies and vice versa at market-determined rates. For India, current account convertibility was introduced in 1994 under IMF Article VIII obligations, allowing free flow for trade and services. Full capital account convertibility, permitting unrestricted movement of capital, remains limited in India.

- Option A relates to the old gold standard, which India does not follow.
- Option B refers to a floating exchange rate regime, not convertibility per se.
- Option D concerns development of forex markets, which is a separate concept from convertibility.

The Foreign Exchange Management Act (FEMA), 1999 regulates convertibility, and the RBI periodically reviews rupee's status. Convertibility enhances international trade, capital movements, and reflects currency's global acceptance.

Answer

Option A: being able to convert rupee notes into gold

Answer

Option B: allowing the value of rupee to be fixed by market forces

Answer

Option D: developing an international market for currencies in India