Tarapore quashes criticisms on FCAC report

New Delhi, Nov 15 (UNI) Seeking to silence the critics of the recent report on fuller capital account convertability (FCAC), Chairman of Tarapore Committee on FCAC S S Tarapore today said the committee's suggestions were to maximise growth, employment and social well-being.

The committee, in its report on August 31, had recommended gradual introduction of FCAC in a three-staged phased manner ending 2010-11, which drew criticism from institutions and political parties, which said a quick move to full capital account convertibility would be highly premature.

Quashing the criticisms, Mr Tarapore, who is ex-deputy governor of RBI, said ''the prophets of doom'' and those who described the recommendations as ''timid'' were ''off-the-mark''.

He was delivering his first public lecture since the report was submitted to the government here.

''Those not wanting any progress on FCAC must realise that an autarkic economy is not a serious option. If we, in India, do not undertake a well calibrated move to FCAC, the forces of globalisation would set a pace which would be out of our control,'' Mr Tarapore said.

''We will become less competitive and thereby not attain the optimum efficiency. In contrast, if we go with wild measures or a big bang dash for FCAC, without attaining the concomitants, the Indian economy would be subject to an acute boom and bust cycle with all its adverse economic, political and social consequences,'' he added.

Claiming that ''there is no point in being heroic about matters of practical policies'' the former RBI deputy governor said that the middle ground taken by the committee stands a very good chance of being implemented and it should be possible to develop a broad consensus around its recommendations.

Mr Tarapore spelt out the concomitants that would facilitate the transition to FCAC. These include fiscal-monetary policies, exchange rate management, prudential regulation/supervisory safeguards and development of financial markets.

''While the report unfolds the concomitants, their order of presentation should not be considered as a precise proiritisation,'' he said.

As for the timing and sequencing of measures for liberalising the capital account, the committee had observed: one, while the overall liberalisation already undertaken has been significant, inconsistencies in the regulations need to be ironed out; two, the time-honoured stipulations on export proceeds surrender requirements need to be reviewed as part of overall management of the current and capital flows.

Three, there is a hang over from the earlier restrictive system and continuing these restrictions would be anomalous in the present liberalised regime. Four, for a more meaningful liberalisation, a basic prerequisite is the untying of the knots in the forex management system.

''The approach of the FCAC committee was to rationalise and gradually liberalise the control. The key measures proposed by it related to the liberalisation of capital outflows by corporates and individuals. These measures would be a major confidence building exercise which would eventually strengthen the macro-economic situation,'' Mr Tarapore said.

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