The
recent announcement made by the Prime Minister, Dr. Manmohan Singh that India
will soon go ahead with its Capital Account Convertibility has triggered a lot
of debate and discussion. There were assertions that the country's economic position
was good enough both internally and externally, to shift towards convertibility.
Finance Minister, P Chidambaram further confirmed that having reached a milestone
on Tarapore Committee, it was the right time to go ahead. Though opinion on this
issue stands divided.
According
to the Tarapore Committee, "Capital Account Convertibility is the freedom
to convert local financial assets to foreign assets and vice versa at market determined
rates of exchange". A full convertibility means the movement of funds in
and out of India without any restrictions. This would mean resident Indians can
pay in foreign currency for purchases made in India. Thus the customers in Indian
banks can now deposit foreign currency cheques and drafts i.e., their remittances
and payments regularly in foreign currencies. Full float will permit resident
Indians to convert the rupee into any foreign currency and take it to any country
without any restrictions. It will enable the individuals to hold their savings
in a foreign currency which they think is strong. It will allow the international
investors to buy and sell Indian assets at their will and wish.
India's
forex reserves have been steadily growing and stood at $143.92 bn for the week
ended March 10, 2006. India's external debt stood at $124.3 bn at the end of September
2005, owing to higher borrowings by Indian corporates abroad. Thus, India's foreign
exchange reserves exceed its external debt by about $20 bn. |
