Capital outflows for all individuals mooted

Capital outflows for all individuals mooted
ENS ECONOMIC BUREAU

MUMBAI, FEB 2: Former deputy governor of the Reserve Bank of India (RBI) Dr SS Tarapore on Friday called for permission to allow capital outflows for all individuals and prescribed modest but reasonable annual ceilings.

“As of now, there is a total ban on capital outflows by individual residents, which is unreasonable. Permission for overseas investments is allowed only for certain categories of professionals, foreign currency earners, stock options, etc. Such piecemeal liberalisation increases rather than decreases the workload on the exchange control,” Tarapore noted in a seminar on ‘Policy Recommendation for Preventing Another Capital Account Crisis’, organised by the Exim Bank of India and the Asian Development Bank (ADB) in Mumbai.

In the backdrop of the East-Asian crisis, Tarapore noted that the country had not experienced this trouble because of its strong and stable macro-economic conditions during this period. “It is wrong that India avoided the East-Asian currency contagion as its capital account was closed. The real reason was that it followed a sensible exchange rate policy and that its key external parametres were sound,” Tarapore said.

There were significant reductions, as compared to the position during the crisis of 90-91, in the current account definition, the external service ratio and the proportion of short term debt to total external debt. “A country cannot afford to blame capital account convertibilty for the ailments of its economy,” he added.