UPSC Prelims 1996·GS1·economy·open economy

One of the important goals of the economic liberalisation policy is to achieve full convertibility of the Indian rupee. This is being advocated because

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  1. Aconvertibility of the rupee will stabilize its exchange value against major currencies of the world
  2. Bit will attract more foreign capital inflow in India
  3. Cit will help promote exportsCorrect
  4. Dit will help India secure loans from the world financial markets at attractive terms

Explanation

The correct option is C because full convertibility allows the market forces of demand and supply to determine the exchange rate of the rupee. In the context of Indias economic liberalisation, a market determined exchange rate often leads to a depreciation of the currency compared to a fixed or overvalued rate. A weaker rupee makes Indian goods cheaper and more competitive in the international market, thereby boosting export earnings. Additionally, it removes currency restrictions for traders, making it easier for exporters to transact and settle payments globally.
economy: One of the important goals of the economic liberalisation policy is to achieve full convertibility of the Indian rupee.
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