(a) the current status of implementation of the recommendations of
Committee on Fuller Account Convertibility;
(b) the benefits likely to accrue to the economy as a result of
implementation of these recommendations, sector-wise;
(c) whether the Union Government has resolved the differences over
the issue of implementation of the said recommendations;
(d) if so, the details of each such issue resolved; and
(e) the time by which full convertibility of rupee is likely to be
brought about?
MINISTER OF FINANCE(SHRI PRANAB MUKHERJEE)
(a) to (e): A Statement is placed on the Table of the House
Statement referred to in the reply to Lok Sabha Starred Question No.
230 by Dr. Shafiqur Rahman Barq and Shri Prabodh Panda, Members of
Parliament, for 12th March, 2010 regarding ‘Committee on Fuller
Account Convertibility’
(a): The Committee on Fuller Capital Account Convertibility (also
known as the Tarapore Committee) submitted its report to the Reserve
Bank of India on July 31st, 2006. It recommended specific measures
relating to external transactions. These were to be implemented
in three phases. Implementation of Phase-1 and Phase-2 measures
is almost over and Phase-3 measures are in the process of implementation.
(b): Capital account convertibility is considered to be one of the
major features of a developed economy. It helps attract foreign
investment. It offers foreign investors added comfort as they can
re-convert local currency into foreign currency at anytime they want
to and take their money away. At the same time, capital account
convertibility makes it easier for domestic companies to tap
foreign markets. When there is progressive integration of the
domestic economy with the global economy in a Fuller Capital
Account Convertibility regime, the interaction of domestic markets
with global markets results in enhanced cross-border capital flows.
Fuller capital account convertibility benefits financial institutions
in areas such as increased diversification, greater access to capital,
and a broader range of risk management tools. However, considering
the risks involved in opening the Indian economy fully by allowing
complete convertibility of the Rupee, the Government and RBI have
adopted a calibrated approach.
(c) and (d): The implementation of the recommendations of the
Committee on fuller Capital Account convertibility is an ongoing
process and actual implementation depends on macro-economic parameters.
The Government, in consultation with the RBI, resolves internal
differences, if any that come up in the process of implementation.
(e): India has followed a gradualist approach to liberalization
of its capital account. Taking lessons from the international
experience, the Committee suggested a number of pre-conditions,
attainment of which was considered necessary for the success of the capital
account liberalization programme in India. Fiscal consolidation,
lower inflation and a stronger financial system were seen as
crucial signposts for India. The Committee did not recommend
unlimited opening up of the capital account, but preferred a
phased liberalization of controls on outflows and inflows.
The appropriate policy in this regard also depends on the state
of the economy, the level of reserves, the quality of existing
prudential regulation, the exchange rate management and the likely
persistence of the inflows. The Full convertibility of rupee is
our ultimate destination and we are taking gradual steps towards
this. However, it is felt that it is not time to jump to that
destination at one go now.