Tarapore, who had chaired the Committee on Capital Account Convertibility (CAC) two years back, said India had also taken wrong lessons from the East Asian crisis. ``We have virtually given up our brief interlude of a cautious move to CAC and take great comfort in the cocoon of exchange controls,'' he said. However, again striking a critical note, Tarapore said the biggest impediment to a move towards CAC was the financial sector which he described as being in `shambles'.

While the regime for corporates in India is being liberalised, there is discrimination against Indian joint ventures abroad and investments in overseas markets by Indian banks and non-banks, Tarapore said while delivering the keynote address at a conference on `Risk management in international markets'.

Referring to the three parameters of inflation, fiscal deficit and financial sector strength specified in the CAC report, Tarapore said that the inflation was at the desired level, the fiscal deficit was manageable but the financial sector formed the weak link in the chain.

Tarapore said corporates should not look to management of exchange risks as a profit centre but should concentrate on their specific area of operation as the main generator of profits. Corporates, in managing exchange risk, should attempt to stay covered on both sides of the exchange market, that is "sell their prospective receipts in the forward exchange market and also cover their future payments through forward purchases," he said.

Elaborating on this aspect, Tarapore said the forward market should be viewed as an insurance agency providing cover against losses at a pre-determined cost. Corporates should also realise that ultimately inflation rate differentials determine the future course of exchange rate and a currency with a higher inflation rate would not be able to escape the inevitable exchange rate adjustment.

Tarapore also expounded on the pitfalls of borrowing in foreign currency at apparently cheaper rates in comparison to borrowing in rupees, without taking into account "the exchange rate risk of the appreciation of a currency and the consequent depreciation of the rupee".

He also criticised the role of the export lobby in the country. A company should avoid taking foreign currency exposure but if it is unavoidable "it should seek full cover for its exposure". The export lobby, said Tarapore, should cease its demand for lower rates of interest on rupee export credit.