The regulatory framework for current account transactions has been pretty stable 1. As far as current account is concerned, the statute mandates that there shall be no restrictions except such that are placed by the Central Government in consultation with the Reserve Bank. 2. ==Convertibility - The Indian currency became convertible on current account from August 1994.== 1. In case of capital account transactions the principle is that only anything that is not allowed is forbidden. In other words, all capital account transactions are considered as prohibited unless allowed. Even as we liberalise capital account more and more, the universe of restrictions shrinks and the regulatory structure will be simpler if it mentions what is prohibited rather than what is allowed. 2. In case of current account transactions the principle is that everything that is not specifically forbidden is allowed. In other words, all current transactions are considered as allowed unless prohibited. 3. In terms of Section 5 of the FEMA, persons resident in India[1](https://www.rbi.org.in/commonperson/English/Scripts/FAQs.aspx?Id=829#f1) are free to buy or sell foreign exchange for any current account transaction except for those transactions for which drawal of foreign exchange has been prohibited by Central Government, such as 1. remittance out of lottery winnings; 2. remittance of income from racing/riding, etc. or any other hobby; 3. remittance for purchase of lottery tickets, banned / proscribed magazines, football pools, sweepstakes, etc.; 4. remittance of dividend by any company to which the requirement of dividend balancing is applicable; 5. payment of commission on exports under Rupee State Credit Route except commission up to 10% of invoice value of exports of tea and tobacco; 6. payment of commission on exports made towards equity investment in Joint Ventures / Wholly Owned Subsidiaries abroad of Indian companies; 7. remittance of interest income on funds held in Non-Resident Special Rupee (Account) Scheme and payment related to “call back services” of telephones 3. FEM (Current Account Transaction) Rules 2000 specifies the different the types of approval available for various types of transactions: 1. Schedule I 2. Schedule II 3. Schedule III 1. Para 1 of [Schedule III](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10193#sdiii) to FEM (Current Account Transactions) Amendment Rules, 2015 dated May 26, 2015 are subsumed under the [Liberalised Remittance Scheme (LRS)](Liberalised%20Remittance%20Scheme%20(LRS).md) 2. Instructions on LRS are available on [Master Direction on Liberalised Remittance Scheme dated January 1, 2016](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10192). 4. There is also some asymmetry, in practice if not in precept, between the current account transactions that involve an [[External - Overseas Investments|outward]] remittance and those that involve an inward one. 5. Transaction in services has been growing steadily in keeping with India’s reputation as an outsourcing hub. ## Components of current account are: 1. The components of current account transactions [[RBI_Image_Balance of Payments (BoP) table from the Annual Report of 2024-25.png|(BoP table in Annual Report 2025)]] are: 1. Trade Balance Net (Exports-Minus) 1. Imports 2. Exports ↳ [[Exports & The RBI]] 2. Invisibles, Net 1. Non-factor services 2. Income 3. Private transfers 1. A short note on [Remittances (inward)](Inward%20Remittances%20(Private%20Transfers).md) 2. [Liberalised Remittance Scheme (LRS)](Liberalised%20Remittance%20Scheme%20(LRS).md) (outward, can be for either capital or current account transactions) > Must Read - Rangarajan, C. (2015, March 13). _Issues in India’s external sector_ (5th Raja Chelliah Memorial Lecture, Raja Chelliah Memorial Lecture Series). National Institute of Public Finance and Policy (An autonomous research institute under the Ministry of Finance). [Link](https://www.nipfp.org.in/cms-index-page/publications/raja-chelliah-lectures/) | [pdf](NIPFP_20150313_Issues%20in%20India’s%20external%20sector_C%20Rangarajan.pdf) ## Rules/Regulations/Directions 1. [Export and Import of Goods and Services](Exports%20&%20The%20RBI.md#Regulations) 2. [Remittances](Inward%20Remittances%20(Private%20Transfers).md#Act) 3. Interest - covers dividends, profit repatriation from FDI, interest payments on debt investments 1. [Foreign Investment in India (Various Routes)](Foreign%20Investment%20in%20India%20(Various%20Routes).md) 2. [Master Direction](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10198) - Deposits and Accounts 1. [Part II](https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10198#P1:~:text=2-,Part%20II%20%2D%20Opening%2C%20holding%20and%20maintaining%20accounts%20in%20India%20by%20a%20person%20resident%20outside%20India,-3) - Opening, holding and maintaining accounts (rupee and foreign currency accounts) in India by a person resident outside India 2. [Part III]((https://www.rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=10198#P3)- Provisions pertaining to Vostro Accounts 3. [ECB (Borrowings in Rupee and FCY)](ECB%20(Borrowings%20in%20Rupee%20and%20FCY).md) ## FAQs 1. Liberalised Remittance Scheme ([LRS](https://rbi.org.in/Scripts/FAQDisplay.aspx?Id=115)) 2. [Miscellaneous forex facilities](https://rbi.org.in/Scripts/FAQDisplay.aspx?Id=66) 3. [Foreign Exchange (Forex) Transactions](https://rbi.org.in/Scripts/FAQDisplay.aspx?Id=146) 1. 1. Money Changing Activities 1. January 1, 2016 - [Master Direction - Money Changing Activities](https://rbi.org.in/Scripts/BS_ViewMasDirections.aspx?id=11518) 2. January 1, 2016 to December 8, 2017 - [Master Direction - Money Changing Activities](RBI_Master%20Directions_20160101_Master%20Direction%20-%20Money%20Changing%20Activities%20(Last%20Updated%20as%20on%20December%208,%202017).pdf) 3. FAQ - [Money Changing Activities](https://rbi.org.in/scripts/FAQView.aspx?Id=54#1) ## Related Notes 1. [[Exports & The RBI]] 2. [Inward Remittances (Private Transfers)](Inward%20Remittances%20(Private%20Transfers).md) 3. [Liberalised Remittance Scheme (LRS)](Liberalised%20Remittance%20Scheme%20(LRS).md) 4. [[An article on foreign trade]] 5. [[Deposits and Accounts]] ## References 1. V.K. Sharma. Dec 10, 2012. ==Unearned and Unshared Prosperity are Unsustainable==. (Keynote Address delivered by Shri V.K. Sharma, Executive Director, Reserve Bank of India, on 30th November, 2012, at International Leadership Symposium on “Rethinking Capitalism and Globalization” organized by World Forum for Ethics in Business in partnership with World Bank Institute at European Parliament, Brussels, Belgium). [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=758) | [pdf](RBI_Speeches_20121210_Unearned%20and%20Unshared%20Prosperity%20are%20Unsustainable_V.K.Sharma.pdf) 2. Kanungo, B.P. (2019, Apr 25, 2019). *India’s growing significance in global arena. Is it Sustainable? Are we ready for it?* Reserve Bank of India. FEDAI Annual Conference at Beijing. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=1074) ### [[Publications (Data Releases) & Research#Research|Research]] 1. BoxII.17-India’s Threshold level of Sustainable Current Account Deficit. RBI's Annual Report 2011. [Link](RBI_Annual%20Report_2011.pdf#page=85&selection=5,0,5,62) 2. Rajan Goyal. Aug 08, 2012. Sustainable Level of India’s Current Account Deficit. RBI WPS (DEPR) : 16/2012. [Link](https://rbi.org.in/scripts/PublicationsView.aspx?Id=14349) | [pdf](RBI_Research_WP_20120808_RBI%20WPS%20(DEPR)%20-%2016:2012-%20Sustainable%20Level%20of%20India’s%20Current%20Account%20Deficit.pdf) 3. RBI. Jan 04, 2019. Mint Street Memos (MSM) No. 17: The Impact of Crude Price Shock on India’s Current Account Deficit, Inflation and Fiscal Deficit. [pdf](RBI_MSM_20190104_Mint%20Street%20Memo%20No.%2017%20The%20Impact%20of%20Crude%20Price%20Shock%20on%20India’s%20Current%20Account%20Deficit,%20Inflation%20and%20Fiscal%20Deficit.pdf) | [Link](https://www.rbi.org.in/Scripts/MSM_Mintstreetmemos17.aspx) [^1]: Harun R Khan (ex-Deputy Governor of RBI). (2016, June 11). *Foreign Exchange Market & Cross-border Transactions: Some Random Reflections* \[Speech\]. 11th Annual Conference of the Foreign Exchange Dealers Association of India (FEDAI), Hong Kong. RBI. [Link](https://rbi.org.in/scripts/BS_SpeechesView.aspx?Id=1008)| [[Foreign Exchange Market & Cross-border Transactions- Some Random Reflections_RBI_21062016.pdf|pdf