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Journalism of Courage
The finance ministry on Friday indicated that the country should move towards greater capital account convertibility in order to help Indian companies access cheaper funds abroad.
The time is ripe for greater capital account convertibility. Global capital is drastically cheaper than Indian capital and our enterprises must have access to it, said Kaushik Basu,finance ministrys chief economic advisor,adding that the Budget has already taken some steps towards it. Basu was speaking at the Annual General Meeting of the International Chamber of Commerce.
But Basus comments come days after the RBI said that full convertibility of the Indian rupee has to be a gradual process.
I dont really see it at this point of time an explicit,strategic objective. I think the focus,at least in the short-to medium-term policy on capital account management,is gradual liberalisation,though with cognisance and action to mitigate the risks, RBI deputy governor Subir Gokarn had said earlier this week.
While the rupee is fully convertible on the current account,it is only partially convertible on the capital account,largely in order to shield the economy from any sudden outflow of capital that can destabilise it.
The RBI has traditionally kept a very caution approach to moving towards full capital account convertibility,even though numerous committees have recommended it. The Tarapore Committee,in its 2006 report,recommended a three-phased approach to making the rupee fully convertible,with the first phase beginning in 2006-07,the second in 2007-09 and the last ending in 2011.
More recently,the Percy Mistry Committee on making Mumbai an international financial capital as well as the Raghuram Rajan committee have also suggested making the Indian rupee fully convertible.
Meanwhile,Basu also ruled out the need for intervention by the RBI to prop up the rupee,which has ended at 51.17/18 to the dollar on Thursday.
