Rbi Woos Banks For Cac Groundwork

The Reserve Bank of India (RBI) has roped in the banking sector for completing the groundwork required for the move towards capital account convertibility (CAC). As a prelude to complete convertibility, the apex bank has expressed a willingness to ease controls to facilitate easy current account convertibility.

The RBI, on September 2, met with officials from the Foreign Exchange Dealers Association of India (FEDAI) and other senior bankers, asking for suggestions as to where in the exchange control regulations, such administrative clearances could be done away with.

The removal of the various controls, particularly in external remittances on the current account, is seen as a necessary fore runner for the phasing in of capital account convertibility. Current account convertibility involves the convertibility of the rupee for the purpose of meeting current transactions, whereas capital account convertibility involves convertibility of the currency for the purpose of acquiring assets overseas.

 

While the rupee has been fully convertible on the current account since March 1993, the RBI still places substantial control on the outward flow of foreign currency, in most cases insisting that such outflows are matched with inflows.

However, the RBI is working on the process of making it fully convertible on the capital account by year 2000. Of late it has been aggressively increasing the powers of authorised dealers for making some remittances.

The RBI has asked the banking sector, represented by FEDAI, to present a compilation of recommendations for the final easing of such controls. Some of the suggestions have already been included in the Tarapore Committee report on Capital Account Convertibility. These include, allowing exporters to establish corporate offices abroad without RBI approval, as well as permitting exporters to hold upto 100 per cent of all earnings in EEFC account. The apex bank has asked bankers to further examine the exchange control and make recommendations.

Most of the suggestions will be in the nature of delegating more powers for all authorised dealers for permitting remittances, further relaxations on the rules of neutrality of foreign exchange, as well as allowing entities earning foreign exchange full freedom with regards to the use of their earnings.

The role of the RBI must be a supervisory one. It is expected that it will delegate all administrative operations to authorised dealers and only concern itself with seeing that its norms are being adhered to, said a treasury chief.