Full rupee convertibility a must - economist
www.gulf-news.com Dubai |By Manoj Nair | 13-01-2003
Despite the economic risks involved, India should still take "sequential" steps towards full capital account convertibility, according to a senior economist.
"India's banking system is still weak and fiscal deficit is not under control. This is why small, incremental steps towards convertibility are what is required," said Jairam Ramesh, who, according to many in the know, could be a future Indian finance or commerce minister.
He later yesterday spoke at a meeting organised by the India Today group and the Indian Business Council in Dubai.
During his earlier tenure with the finance ministry - in 1997 -as a consultant, Ramesh was instrumental in putting together a position paper on India's road map towards full convertibility. According to it, the status was to be achieved by 2007.
Then, the Asean crisis sprang up, which slowed the momentum. This was followed by general elections which brought a new coalition government to power.
In recent months, a debate has sprung up in certain quarters about whether it was indeed advisable for the country to follow such a course. There were many who were cautioning a slower approach, or none at all.
Those who favour it point out to India's strong foreign exchange reserves position - of $70 billion. "There is still a lot of risk - Brazil lost $50 billion in just three weeks when it allowed convertibility during 1999. However, hot money represents only 20 to 15 per cent of India's overall foreign exchange reserves, which represents a far more stable situation than in other cases," said Ramesh, presently secretary in the economic affairs department of All India Congress Committee, the main opposition party.
"But, from the political perspective, India does not go in for big reforms unless there is a crisis." On India's economic situation, Ramesh said 2002-2003 has been bad with industrial growth not more than 5 to 6 per cent. "I do not think it is possible to achieve a 4 per cent GDP growth. Agriculture too has been badly affected."
On the plus side, "Many Indian companies are in the process of restructuring and getting results. Tisco is the lowest cost steel producer in the world, but not many know that. Telco was written off a few years ago, but is now a success story of transformation. There is a growing universe of Indian companies that are globally competitive.
"But we still have many issues - poor infrastructure tops. In balance, India has many macro successes, while having its large share of micro failures."
On the impact of possible war with Iraq and its fallout on India's oil bills, "Most of our calculations are based on an oil price of $25 a barrel. With $70 billion in reserves, the import scene is not what's worrying.
"What is of concern is the economic and social cost of the dislocation of a huge number of expatriate Indians in the Middle East back to the country.
"The recent global NRI summit in New Delhi made no effort to look at the Middle East, which accounts for $6 to 7 billion in annual remittances to India from an estimated three million Indians here. The whole focus of the meeting was on Indians in the West."