india ’ s capital account management – an assessment 1 1. in the previous fedai annual day address in november 2020, governor shri shaktikanta das had observed that cac will continue to be approached “ as a process rather than an event ”. what i will do in this address is to expand on that theme and bring into focus some of the important issues on which, in my opinion, further public debate is warranted, to continue along this process of capital account convertibility. what is capital account convertibility? 2. the balance of payments ( bop ) of a country records all economic transactions of a country ( that is, of its individuals, businesses and governments ) with the rest of the world during a defined period, usually one year. these transactions are broadly divided into two heads – current account and capital account. the current account covers exports and imports of goods and services, factor income and unilateral transfers. the capital account records the net change in foreign assets and liabilities held by a country. convertibility refers to the ability to convert domestic currency into foreign currencies and vice versa to make payments for balance of payments transactions. current account convertibility is the ability or freedom to convert domestic currency for current account transactions while capital account convertibility is the ability or freedom to convert domestic currency for capital account transactions. the tarapore committee ( 2006 ), for instance, defined speech delivered by deputy governor shri t rabi sankar on the fifth foreign exchange dealers ’ association of india ( fedai ) annual day on october 14th, 2021. it was delivered via virtual platform. capital account convertibility as the “ freedom to convert local financial assets into foreign financial assets and vice versa. ” 3. the degree of bop convertibility of a country usually depends on the level of its economic development and degree of maturity of its financial markets. therefore, advanced economies ( aes ) are almost fully convertible while emerging market economies ( emes ) are convertible to different degrees. why is capital account convertibility important? 4. free capital mobility, or internationalization of capital markets, is commonly recognized as an engine of global growth. specifically, benefits of internationalization of capital markets are well accepted, in terms of broadening the investor base for recipient country financial assets, improved liquidity in financial markets and positive pressures for market infrastructure and market practices. international capital markets, by enabling access to a global savings pool and to different currencies, can potentially reduce borrowing costs, facilitate better risk allocation

ultimately, promoting the fair treatment of policyholders. in this connection, i am pleased to announce that after more than two years of extensive discussions with the industry, the revised guidelines on medical and health insurance business have now been finalized. the guidelines will be released to the industry this month for implementation early next year. this is an important strategic development, both from the public policy and consumer perspectives. today, medical insurance business accounts for the largest share1 of non - tariff general insurance premiums in the market, with premiums exceeding rm1. 3 billion in 2004. the revised guidelines have retained a significant degree of product flexibility, and enhanced disclosure requirements to promote increased competition while more clearly defined rules governing 10, 5 % of total general gross direct premiums, third ( in terms of market share ) only to motor and fire business. minimum policy terms and conditions will be put in place to deliver a reasonable level of protection to policyholders. these requirements will also promote more consistent treatment of consumers in the provision of core benefits under medical insurance policies. where regulatory intervention remains necessary, the bank will continue to balance the business interests of industry participants with that of consumers, to ensure that the costs of regulation are commensurate with its perceived benefits to consumers. in the long term, however, reliance on regulation and supervisory oversight alone is not a sustainable solution to the market conduct and broader confidence issues that confront the industry. the desired outcome should be one where freedom of action is accompanied by an appropriate degree of moral restraint on the part of the market. this requires compatible incentives in the system and a strong ethical foundation built within institutions which will ensure that insurers and takaful operators act responsibly within an environment that allows greater business flexibility. the strategic issues before us today concern the industry's responsibility to deliver a fair proposition to consumers, its relevance in the changing environment and its readiness in terms of capacity and infrastructure to support and sustain a successful strategy for growth. it is hoped that discussions at this dialogue will contribute towards the thinking on future corporate strategies as well as on the regulatory responses to ensure sound development. this will be an opportunity to engage actively in the discussions on these keys issues confronting the industry in moving forward. i wish you a successful and productive dialogue. thank you.