What is the difference between the current account convertibility and capital account convertibility?

Currency convertibility means the freedom to convert one currency into other internationally accepted currencies, wherein the exporters and importers where allowed a free conversion of rupee.But still none was allowed to purchase any assets abroad. Capital Account Convertibility means that rupee can now be freely convertible into any foreign currencies for acquisition of assets like shares, properties and assets abroad. Further, the banks can accept deposits in any currency. so if a foreigner buys a building in India, and after 5 yrs its selling price rises so sells it at five times the cost he collected, now he has rupees in hand, can he easily convert these rupees into say 'yen' easily? Considering that exchange rate is better in terms of INR-JPY, the foreigner would want to convert the currency into yen..and this can be done if complete capital a/c convertibility takes place.. Remittance to foreign countries from india is restricted by RBI. for import of machines you are remitting abroad means it is capital account convertibility. if you remit money to your son or relative living abroad means current account convertibilty.

In economics Balance of Payments has two components1) current account 2) capital account The current account is the sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid). Capital Account -

Breaking this down-

A surplus in the capital account means money is flowing into the country, but unlike a surplus in the current account, the inbound flows will effectively be borrowings or sales of assets rather than earnings. A deficit in the capital account means money is flowing out the country, but it also suggests the nation is increasing its claims on foreign assets.

current account convertibility means that any company that wants to conduct business with outside companies (like TCS, Infy etc.) can convert the dollar payment into Rupee payment or pay in terms of dollar itself. This is fully allowed in India provided that initial permission is taken from RBI. There is no need to take again and again permission from RBI permission for every transaction business runs on current account, and hence there is no restriction upon it, except that company requires a one-time prior permission from RBI for doing this.

In India we have no restrictions on current account convertibility while there are restrictions on capital account conevrtibility. We still dont have full capital account convertibility. Capital account convertibility in India is partial. Basically there are multiple ways of investing in India in case of Capital Accounts - FDI , FII, FPI/QFI. It is either through Automatic route or through Foreign Investment Promotion Board (FIPB)