Financial system monitoring mechanism should be strengthened
CHENNAI: The country should proceed cautiously on the issue of capital account convertibility, and, as a prelude to allowing conversion of the Indian rupee into foreign currency and vice versa, strengthen its information gathering and financial system monitoring mechanism.
This was the underlying message that former civil servant B.S. Raghavan sought to convey at a symposium on capital account convertibility of the rupee organised here on Sunday by the Swadeshi Jagaran Manch, D. Rangasami Academy for Fiscal Research, S.V. Research Foundation and Rajaji Centre for Public Affairs.
While it is difficult to predict the impact, the outcome of the move would depend on the vigilance mechanism, the (banking and financial) institutions and the ability and flexibility of the country to make "mid-course corrections," he said.
Noting that the issue had to be approached in a country-specific context, Mr. Raghavan cautioned against safeguarding against bankruptcy due to the manifestations of the financial markets and currencies. Financial institutions and the banking sector of the country should develop the expertise required to operate in and handle the situations.
The emphasis while allowing capital account convertibility should be on measures that enhance investor confidence and ensure financial stability.
National convenor of Swadeshi Jagaran Manch Muralidhar Rao said full capital account convertibility was not a priority in the backdrop of the developmental work required. But the significance being accorded to the issue goes to prove that it was driven by external considerations.
Noting that the move would have political ramifications for the Government, he said capital account convertibility should not be seen in isolation of other aspects concerning the economy and development.
The president of S.V. Research Foundation G. Narayanaswamy, chartered accountant and member of the Swadeshi Jagaran Manch R.G. Rajan and R. Shivakumar of D. Rangasami Academy for Fiscal Research spoke.