RSS affiliate warns against full convertibility of Rupee

Full Capital Account Convertibility will not suit an economy like India, says Swadeshi Jagran Manch

An RSS affiliate has warned against full convertibility of Rupee on Capital Account, saying it will adversely affect the economy that "needs controls and regulations for time being", voicing reservations over RBI Governor Raghuram Rajan's views in this regard.

Swadeshi Jagran Manch, an RSS-affiliated body, has in its National Council Meeting cautioned the government "not to make this mistake".

"Taking objection to the recent statements of the Governor of Reserve Bank of India and Minister of State for Finance, Government of India, that rupee should be made convertible on Capital Account, the National Council of the Swadeshi Jagran Manch cautions the Government not to make this mistake," its resolution said.

It further said, "Full Capital Account Convertibility will not suit an economy like India, which is undergoing the process of structural reforms which needs controls and regulations for the time being."

SJM national Co-Convener Ashwani Mahajan said the Manch held a meeting of its National Council at Vijaywada in Andhra Pradesh on June 27 and 28 and discussed the issue at length and felt that full rupee convertibility would lead to outflow of domestic savings and would adversely impact the economy.

"Swadeshi Jagran Manch firmly believes that a free Capital Account will lead to export of domestic saving, which for a capital-scarce country like India, can seriously affect the economy adversely," the resolution said.

The SJM feels various governments have attempted Capital Account Convertibility of the Rupee and globalization apologists look upon this as a final step towards integrating domestic economy with the world.

It said those favoring convertibility of rupee on capital account argue that domestic investors can maximize their profits by purchasing Capital assets abroad and argue that this would help raise loans from abroad at lower interest.

Mahajan said the first major attempt in this direction was made by Government of India in the year 1996-97 and Swadeshi Jagran Manch strongly opposed the move then. Government then constituted the Tarapore Committee to prepare a road-map for making rupee fully convertible on Capital Account.

"Thanks to the South East Asian financial crisis, the Government had to take its hands off from this move," he said.

The SJM said Tarapore Committee recommended that in order to move in this direction some conditions were to be met, which India is yet to do.

"India is yet to achieve targets as set forth by Tarapore Committee for initiating the Capital Account Convertibility and any attempt to do it now will be in violation of the Report," the resolution said.