The document outlines the concept of 'deemed exports' in India, where goods supplied domestically are considered exported and can be sold to licensed importers within the country. It also discusses currency convertibility, detailing the transition from partial to full convertibility of the Indian rupee starting in 1992, along with the implications for international trade and finance. Two Tarapore Committees were established to guide the roadmap for capital account convertibility, suggesting a phased approach to achieve full convertibility by 2011.

1. ANANDAPADMANABHAN J
S 2. M.com

2. Deemed Export
"Deemed Exports" refers to those transactions in
which the goods supplied do not leave the country.
Deemed export means that the goods are
considered to have been exported even if they
have not moved out of the country. Under
deemed export, the goods can be sold within
India to a anybody who holds a licence for
import of these very goods. The seller selling the
said goods against an import licence is the
deemed exporter and the buyer is the deemed
importer.

3. The following categories of supply of goods by the
main/ sub-contractors shall be regarded as "Deemed
Exports" under this Policy, provided the goods are
manufactured in India:
Supply of goods to Export Oriented Units
(EOUs) or Software Technology Parks (STPs) or
Electronic Hardware Technology Parks (EHTPs)
or Bio Technology Parks (BTP);
supply of capital goods to holders of licences
under the Export Promotion Capital Goods
(EPCG) scheme;

4. Supply of goods to nuclear power projects
through competitive bidding as opposed to
International Competitive Bidding.
supply to projects funded by UN agencies.

5. Rupee Convertibility
The term convertibility of a currency means that
it can be freely converted into any other
currency. It helps in the removal of quantitative
restrictions on the trade.
After the announcement of economic
liberalisation in July 1991, Govt. of India
announced partial convertibility of Rupee from
March 1, 1992. Under this partial convertibility
40% of the current account transactions were
convertible in rupee at officially determined
exchange rate and remaining 60% at market
determined exchange rate.

6. The Govt. of India, in March 1993,
introduced a fully unified market
determined exchange rate system. Thus
the unification of exchange rate and
floating rupee was started in 1993-94.
The final step is the announcement of
full convertibility of the rupee on
current account in August 1994 by
accepting the obligation under article
VII of the IMF.

7. Currency
Convertibility
Current
Account
Convertibility
Capital
Account
Convertibility

8. Current Account Convertibility
Convertibility on current account is defined
as, “the freedom to buy or sell foreign
exchange for the following international
transactions:
All payments due in connection with foreign
trade, other current business including
services and normal short term banking and
credit facilities.
Pursuing Higher education abroad.
Tourism.
Moderate remittances for family living
expenses.”

9. Implications
Now the authorised dealers are
empowered to release exchange without
prior approval of Reserve Bank of India.
Exporters find it easy to transact the
business.
Many bureaucratic hurdles are eliminated
in the process of obtaining foreign exchange
for imports.
More than 100 countries in the world
allowed full convertibility of their
currencies on capital account.

10. Capital Account Convertibility
Capital Account
Convertibility (CAC) is the
freedom to convert local
financial assets into foreign
financial assets at market
determined exchange rates.

11. Non-Convertible capital
Cuba(peso) and North Korea(won)
Non participation in FOREX market
Major challenge for domestic currencies
there.
Partial Convertible Capital-
Indian Rupee
RBI’s restriction on the inflow and outflow
of capital
Full Convertible Capital-
US dollars
No restrictions or limitation on the amount to
be traded
Thus, this is one of the major currency traded
in FOREX market

12. Upto 1991, there was rigid control on
both Capital and Current account.
Capital account convertibility was
introduced in India in August 1994.
In 1997 the government had set up a
committee (Tarapore committee) to spell
out a road map for the full convertibility
of the rupee.

13. Tarapore Committee
Committee on capital account
convertibility, set up by RBI(Reserve Bank
of India) under the chairmanship of former
RBI deputy governor S.S. Tarapore.
Economists Surjit S Bhalla, M G Bhide, R
H Patil, A V Rajwade and Ajit Ranade were
the members of the Committee.
The report submitted by this Committee
in the year 1997 proposed a three-year time
period (1999-2000) for total conversion of
Rupee

14. The Second Tarapore Committee on
Capital Account Convertibility
Reserve Bank of India appointed the second
Tarapore committee to set out the framework
for fuller Capital Account Convertibility.
The report of this committee was made public
by RBI on 1st September 2006. In this report,
the committee suggested 3 phases of adopting
the full convertibility of rupee in capital
account.
 First Phase in 2006-7
 Second phase in 2007-09
 Third Phase by 2011.

15. The government is adopting a
cautious approach, taking into
consideration all aspects and
the risks involved in opening up
the economy by allowing
convertibility of the currency.

16. References
International trade & financial
Environment.
M.K.Bhat – Ane Books Pvt. Ltd.- New
Delhi-2009
International Business, Text and
Cases, P.Subba Rao
Himalaya Publishing House, Mumbai.