Are we ready for Capital Account Convertibility?
As we know today Capital Account convertibility in India is the talk of the town, is India really ready to implement CAC? This is a question which is bugging even the Central bank. Still the FM, RBI governor and Chairman of the Planning Commission have not come to a consensus about the implementation of CAC. The second report of the Tarapore Committee is yet to come.
160 economists have already issued a statement against CAC. Implementing CAC will imbalance our Forex Reserves. Lawrence Summers thinks India’s 15% forex reserves are in excess, in such a case if CAC is implemented it will hike this figure more and the value of out domestic currency will appreciate, in turn it will badly effect out export trade because depreciated value of the foreign currency will reduce out corporate earnings.
If our policymakers think that by relaxing capital inflow norms or by implementing CAC India will have more Capital inflows, then I would like to ask them that even china does not have any modal of CAC, it has rather restricted Capital inflows, still it has more capital inflows than India.
Since presently we do not have full CAC, but still we have some CAC, an Indian householder can acquire international assets till $25000 . But still there are a handful of Indian householders to exercise this option. So, the question of hiking such limit does not arise at all. Because Indian householders are getting more returns domestically than going global.
Keeping all above factors in mind I am of the view that we still have to wait to implement CAC.
160 economists have already issued a statement against CAC. Implementing CAC will imbalance our Forex Reserves. Lawrence Summers thinks India’s 15% forex reserves are in excess, in such a case if CAC is implemented it will hike this figure more and the value of out domestic currency will appreciate, in turn it will badly effect out export trade because depreciated value of the foreign currency will reduce out corporate earnings.
If our policymakers think that by relaxing capital inflow norms or by implementing CAC India will have more Capital inflows, then I would like to ask them that even china does not have any modal of CAC, it has rather restricted Capital inflows, still it has more capital inflows than India.
Since presently we do not have full CAC, but still we have some CAC, an Indian householder can acquire international assets till $25000 . But still there are a handful of Indian householders to exercise this option. So, the question of hiking such limit does not arise at all. Because Indian householders are getting more returns domestically than going global.
Keeping all above factors in mind I am of the view that we still have to wait to implement CAC.
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