Reforms Road Map...

restrictions against the judgment of ones trade partners will be to invite being thrown out of the world trade organisation. That will do India more harm than good. So the best way to go about accepting this reality is to reshape the economy so that when convertibility comes, there is chaos or retrogression.

The really innovative and rigorous part of the report is to specify what needs doing at every stage. It goes without saying that if there is a slip-up at any stage, the scheduled arrival at the ultimate destination will have to be revised. The report has also linked full convertibility to the achievement of sectorwise goals. The report gives year-wise targets for reducing banks cash reserve ratio and non-performing assets and recommends that parliament should lay down yearly targets for inflation to bring it down to between three to five per cent.

 

Thus, instead of making convertibility an emotive issue in which ideological positions are adopted, the Tarapore committee report has tried to focus the debate around the macro economic and financial sector policies that need to predicate it. What, therefore, needs a closer look are the targets that the committee has reccommended on the fiscal deficit (3.5 per cent), inflation (3 per cent) and bank NPAs (5 per cent). Viewed thus, convertibility translates into a tight disciplinary regime. Individuals and businessmen who may find the greater personal freedoms over the holding of foreign assets or remittances very attractive, must also realise that their freedom comes at a cost. Full convertibility presupposes the removal of qualitative restrictions on imports and a further lowering of import tariffs. Non-competitive businesses have no place in this scenario.

The report has correctly set out a whole range of separate goals for not just the macro variables of the economy but also the money market, interest rates, policy on banks, reserve requirements, forward markets, gold trade and exchange rate management. The report has correctly positioned full convertibility as a mega unifying concept which brings together many strands of the entire reform process.