NEW DELHI: Strong macro economic fundamentals and wiping off of the revenue deficit are pre-requisites for moving toward capital account convertibility, former RBI Deputy Governor S. S. Tarapore, who headed the Committee on Fuller Capital Account Convertibility (FCAC), asserted here on Wednesday.

Addressing an interactive session on `Towards fuller capital account convertibility' organised by the Federation of Indian Chambers of Commerce and Industry (FICCI), Mr. Tarapore sought to silence critics of the committee's report and declared that the committee's calibrated sequencing and timing of measures along with progress on the concomitants would maximise growth, employment and social well being.

"Capital account convertibility (CAC) should be gradual and cautious,'' Mr. Tarapore said, answering those favouring a big bang approach toward full float of the rupee.

Delivering the first public lecture after the submission of the report to the RBI, he said the extreme positions taken by the prophets of doom and those who described the recommendations as "timid" were off the mark.

He defended the committee's recommendations on a phased approach toward FCAC, reminding critics that India could ward off the 1997 East Asian crisis, not owing to stringent capital control, but thanks to a strong macro economic situation.

Underlining the need for caution, he said, "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 — 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," Mr. Tarapore elaborated.

Responding to the observations by S. K. Poddar, FICCI President, Mr. Tarapore said the middle ground taken by the committee stands a good chance of being implemented and it should be possible to develop a broad consensus around the committee's 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 prioritisation, he emphasised.

He said the stipulation for long in force on export proceeds surrender requirements needed to be reviewed as part of an overall management of the current and capital flows. "This is a hangover from the earlier restrictive system and continuing these restrictions will be anomalous in the present liberalised regime. For a more meaningful liberalisation, a basic prerequisite is the untying of the knots in the forex management system," he added.

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