Gradual approach to achieve full convertibility: RBI

The Reserve Bank of India (RBI) on Monday said the country would adopt a calibrated approach towards full capital account convertibility so that the macroeconomic stability was not affected.

“India needs to adopt a calibrated approach to achieve full capital account convertibility,” RBI Governor D Subbarao said in a speech here.

The Indian rupee is fully convertible on the current account but only partially convertible on the capital account, as the government wants to shield the economy from sudden outflows of foreign capital in the times of crisis.

RBI had appointed a committee to chart out a road map for fuller capital account convertibility. The committee, headed by former RBI deputy governor S S Tarapore, had suggested a three-phased approach to making the rupee fully convertible. Subbarao also reiterated that RBI looked at market-determined exchange rates and its intervention in the foreign exchange market was only to limit volatility. India’s forex reserves were at $315.715 billion in the week ended July 1, according to RBI data.

“We need to focus on the external sector, which means looking at a sustainable level of current account deficit and a market-determined exchange rate but an exchange rate managed by RBI such that there is no volatility and it doesn’t militate against macroeconomic stability.”

India’s current account deficit stood at 2.6 per cent of gross domestic product in the financial year ended March 31.