Full float depends on strong macro-economic fundamentals: S S Taraporenews
16 November 2006

Former RBI Governor and the economist who has twice prepared the blueprint for capital account convertibility, S S Tarapore, has cautioned against haste in moving towards full capital account convertibility.

Tarapore has warned that strong macro-economic fundamentals were a pre-requisite for a full float of the rupee to enable Indians to freely invest abroad and acquire property. He said India had been saved from East Asian contagion because it had strong macro-economic fundamentals and not because of controls.

Fiscal policies, exchange rate management, prudential regulation and development of financial markets, would all have to be in place to facilitate the transition to fuller convertibility Tarapore told a seminar.

"If we do not undertake a well calibrated move on fuller capital account convertibility, the forces of globalisation would set a pace which would be out of our control. We will become less competitive and not attain optimum efficiency."

Tarapore also clarified that the issue of participatory notes had been include by the committee and not inserted it by stealth, as had bee alleged. He said, "The PNs issue was discussed at length on a number of occasions in the committee. Moreover, there were dissents on the recommendation which show that the allegation was a canard," Tarapore said.

The committee has asked for a ban on participatory notes (PNs) and suggested that the existing PNs should be phased out over a period of one year, which had become a contentious issue with the finance ministry.

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Full float depends on strong macro-economic fundamentals: S S Tarapore