Full float violates CMP, says Left

Terming the move towards full capital account convertibility a "significant departure" from the national common minimum programme (NCMP), the CPI(M) today demanded winding up of the SS Tarapore Committee, which has been asked to chalk out a roadmap towards full float of the rupee.

A statement by the CPI(M) Central Committee said the programme, far from advocating full float, was committed to reducing the "vulnerability of the financial system to the flow of speculative capital".

The party said the finance minister's clarification in the Rajya Sabha that no decision had been taken yet did not hold water since the RBI had already constituted the Tarapore committee.

The party said after the financial crises in South East Asian countries, Mexico, Russia and Brazil, it was widely held that allowing an entity to transfer funds in and out of the country at will caused more harm than good.

Citing RBI figures, the CPI(M) said the ratio of volatile capital flows to reserves, which was 36 per cent in March 2004, had increased to 40.5 per cent in September 2005.

In contrast, the share of net FDI in total private capital inflows was around 10 per cent. Far from generating any sense of comfort, such a large rise in volatile capital inflows increased the possibility of financial turbulence, the party said.

The combination of an "unsustainable stock and real estate bubble fuelled by hot money inflows, currency appreciation and a widening current account deficit" being witnessed in India currently looks "eerily similar" to the situation prevailing in the South East Asian countries in the period preceding the currency crisis of 1997-98, it added.

Introducing full float at this stage would further encourage such speculative inflows and reckless commercial borrowings, the party said, adding that the UPA government's move towards was in keeping with its "pro-speculator bias".

The "lure of tax-free speculative gains" has attracted billions of dollars of portfolio investments into the Indian capital markets over the past two years, which, in turn has led to an unprecedented stock market boom, the statement said.

FII equity holdings currently comprise over 13 per cent of market capitalisation in the Indian stock market in contrast to less than three per cent in China, it added.

"This is enhancing risk within our financial system and has the potential of causing enormous pain to the common people who would have to bear the brunt of adjustment once the ephemeral boom comes to an end," the CPI(M) said, re-iterating its "unequivocal opposition" to full capital account convertibility.

Meanwhile, CPI National Secretary D Raja said the government's move was meant to "maximise financial sector liberalisation, which is not in country's interest".