Tarapore Panel Stance On Cac Accepted
The Tarapore Committee Report, the blueprint for the move of the Indian economy towards full rupee convertibility on the capital account, has been accepted broadly by the Reserve Bank of India (RBI). Equally notable is the RBI's declaration that it would not be essential to wait until all pre-conditions are met for implementation of the recommendations.
The recent strengthening of India's balance of payments (BoP) has enabled the country to accept the obligations of Article VIII of the International Monetary Fund (IMF) which prohibits all restrictions on payments in relation to current account transactions. Hence restrictions on current account convertibility were phased out by March 1993. What remains is the transition to capital account convertibility.
A special committee was set up to look into this issue under the chairmanship of S S Tarapore, former deputy governor of RBI. The committee has indicated a phased programme of liberalising CAC transactions spread over a period of three years, in conjunction with certain pre-conditions to be achieved in this context.
"It is not essential that any liberalisation of capital account convertibility transactions should wait until all the pre-conditions are fully met. In some cases, liberalisation of capital account transactions can itself facilitate achieving of some of the pre-conditions. Therefore, an eclectic approach should be to liberalise the capital account transactions even as the process of achieving some of the pre-conditions is in progress," said the report.
"While the Reserve Bank is broadly in agreement with the stance take by the Committee on CAC, it is currently engaged in looking at the specific recommendations made by the committee to be made operational during 1997-98," the report said.
With a view to move progressively towards capital account convertibility, the Union Budget for 1997-98 proposed introduction of a Bill to pass as an Act called the Foreign Exchange Management Act (Fema) which will replace the Foreign Exchange Regulation Act (Fera), 1973.
The Act is expected to bring about a change in the exchange control management framework by according a supervisory role to the RBI, enhancing the powers of authorised dealers, and reducing the powers of the Enforcement Directorate.