No Cac, Please

LETTERS TO THE EDITOR

This refers to the report on the finance minister agreeing that the Southeast Asian countries flu is entering India and that steps taken by RBI are justified (January 17).

Since the day the rupee started depreciating, the official version has always been that though the rupee has risen, the crises in the SE Asian countries has had no effect on it. It was said that the Indian economy was fundamentally strong for the following reasons:-

n The current account deficit is below the level of 1.5.

n The forex reserves are over $27 billion against $22 billion as on April 1, 1997, and the proportion of short-term reserves is much below that of the so-called Asian Tigers.

 

Our finance managers have always been advocating capital account convertibility (CAC) on the basis of the above strengths.

I wish to add that with liberalisation and the opening up of the economy resulting into the integration of the Indian economy with those of other countries, the country has already tasted the adverse effects in the form of shocks in the stock market and the forex market. The only thing that has saved the rupee is that the country has not gone in for CAC. The present RBI measures, no doubt, are to protect the rupee, but the rise in interest rates shall affect further growth in the industrial sector. The sooner these are withdrawn the better it shall be for the economy.