Explanation
- A
being able to convert rupee notes into gold
(a) being able to convert rupee notes into gold. That is a gold-standard convertibility India does not run. Not the modern meaning here.
- B
allowing the value of rupee to be fixed by market forces
(b) allowing the value of rupee to be fixed by market forces. That is exchange-rate flexibility (floating), not convertibility of the currency itself.
- C
freely permitting the conversion of rupee to other currencies and vice versa.
(c) freely permitting the conversion of rupee to other currencies and vice versa. Convertibility means residents and/or non-residents can exchange rupees for foreign currency (and back) for permitted transactions. That is the official key.
- D
developing an international market for currencies in India.
(d) developing an international market for currencies in India. An offshore or onshore forex market can exist without full convertibility. Not the definition.
Summary. Official key is (c) freely permitting the conversion of rupee to other currencies and vice versa. Convertibility is about exchanging the rupee for foreign currency. It is not gold convertibility, not the same as a float, and not the same as hosting a currency market. India has current-account convertibility; capital account remains managed.