Vijaywada (Andhra Pradesh) Resolution - Do not make Rupee Convertible on Capital Account

Swadeshi Jagran Manch
National Council Meeting
27-28 June, 2015, Vijaywada (Andhra Pradesh)

Do not make Rupee Convertible on Capital Account

Taking objection to the recent statements of the Governor of Reserve Bank of India and the Minister of State for Finance, Government of India, that rupee should be made convertible on Capital Account, the National Council of the Swadeshi Jagran Manch cautions the Government not to make this mistake.

Various Governments from time to time attempted the Capital Account Convertibility of the Rupee. Globalization apologists look upon this as a final step towards integrating domestic economy with the world.

Those favoring convertibility of rupee on capital account argue that domestic investors can maximize their profits by purchasing Capital Assets abroad. They also argue that this would help raising loans from abroad at lower rates of interest.

First major attempt in this direction was made by Government of India in the year 1996-97. Swadeshi Jagran Manch strongly opposed the move of the then Government. However, taking an adamant stand, the Government constituted a committee, known as Tarapore Committee, to prepare a road-map for making rupee fully convertible on Capital Account. Thanks to the South East Asian financial crisis, the Government had to take its hands off from this move.

Tarapore Committee recommended that in order to move into this direction, following conditions need to be satisfied among others:
a. Fiscal Deficit to be brought down to 3.5 percent by 1999-2000.
b. Rate of inflation to be brought down to 3 to 5 percent
c. Non Performing Assets (NPAs) of the banks be brought down from 13.7% then to 5%
d. External sector policies designed to increase Current Receipts to GDP Ratio and bring down debt service ratio from 25% to 20%

India is yet to achieve the targets as set forth by Tarapore Committee for initiating the Capital Account Convertibility and any attempt to do it now will be in violation of the Report.

Swadeshi Jagran Manch firmly believes that a free Capital Account will lead to export of domestic saving, which for a capital-scare country like India, can seriously affect the economy adversely. Full Capital Account Convertibility will not suit an economy like India, which is undergoing the process of structural reforms which needs controls and regulations for the time being.

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