The Hindu : Business : Rangarajan for gradual move to capital account convertibility

Online edition of India's National Newspaper
Wednesday, Jun 23, 2004

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Rangarajan for gradual move to capital account convertibility

By Our Special Correspondent

NEW DELHI, JUNE 22. The Chairman of the Twelfth Finance Commission, C. Rangarajan, today advocated a gradual approach towards full capital account convertibility, saying there could not be a jump towards full convertibility.

Speaking at a function organised by the Observer Research Foundation here, the former Governor of the Reserve Bank of India said the management of the external sector had been one of the success stories of India in the last decade and "we are in the right direction in this regard." He said the country had completed the first step towards full float of the rupee by allowing foreign direct and institutional investors to bring in and take out money from the country. The second stage was allowing companies and individuals to borrow and invest in foreign exchange and this step had been initiated but not completed.

Dr. Rangarajan also stressed on development of three critical sectors — land, water and fuel. He said the net sown area could not be increased in a country and so the gross sown area had to be increased through better irrigation. Electricity reforms were important to improve efficiency, reduce costs and enable capital flow in the energy sector, he said, adding there was an urgent need for segregating generation, transmission and distribution of power.

About the fiscal situation of the States, Dr. Rangarajan stressed the need for steps to encourage fiscal efficiency. "We have reached a point where most of the States face fiscal problems. Basically we need to have policies that encourage fiscal efficiency and discourage fiscal imprudence," he said on the sidelines of the function. The chairman explained that the five-month extension till the year-end for the Finance Commission to submit its reports had been necessitated to work out the quantum of devolution of resources to States from the Central pool of taxes, the exact picture of which would be available only after the presentation of the general budget.

He said the Commission has visited 22 States to elicit their views and six more were yet to be visited. Besides some States were yet to send their budgets for analysis by the Commission. Unless the Commission had the latest figures, which would be available only after the Union Budget, it would not be possible to work out the sharing of funds between the Centre and the States, he added.

Stressing on the need for fiscal prudence by States, Dr. Rangarajan said without fiscal efficiency, the economy would not have the resources to ensure equity. He said the finance panel would also suggest debt relief for States in its final report.

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