Reserve Bank Governor Raghuram Rajan today said the central bank is looking at allowing full capital account convertibility in a few years.
“My hope is that we will get to full capital account convertibility in a short number of years,” he said.
Full capital convertibility means a foreign investor can repatriate his money into his own local currency at will, which is not allowed in the country now.
Stating that the RBI is fairly open to capital inflows, the Governor said: “The only place today that we have some restrictions is inflows into debt, especially very short-term debt.
“I think most people would agree that opening up to short-term debt flows is usually not very clever for reasons of financial stability,” Rajan said while delivering Kale Memorial Lecture at the Gokhale Institute of Politics and Economics here.
Rajan’s comment on full capital convertibility assumes importance as Finance Minister Arun Jaitley today launched the country’s first international finance centre in Gujarat. Full rupee convertibility can go a long way in the effective functioning this global financial services hub.
It may be noted that many analysts had credited the RBI for its policy of partial capital control, which helped it tide over the impacts of the currency meltdown that many South Asian economies which had full capital convertibility in 1997-98.
In May-August 2013, capital control helped the country from going to the dumps following the taper talks by the US Fed. Even then the country saw as many as over USD 20 billion being pulled out of the country by foreign investors.
Following the June 1991 liberalisation, the government and the RBI have been progressively lifting curbs on capital flows, which saw the FII investment into domestic debt rise to USD 31 billion now.
