The Hindu Business Line : CPI(M) seeks debate on fuller capital account convertibility

The Communist Party of India (Marxist) politburo has expressed "serious concern" that the Reserve Bank of India has initiated the implementation of the recommendations of the Tarapore Committee on fuller capital account convertibility despite strong reservations from several quarters.

In a statement, the CPI(M) has said that there is a strong apprehension that further liberalisation of the capital account in India would increase volatility in the financial system and make it vulnerable to capital flight and currency meltdown as was experienced in South East Asian and other developing countries not too long ago.

"In case of such a catastrophe, the entire population would be affected through spiralling inflation and other adverse consequences", the CPI (M) has said.

The party statement has also noted that moving towards fuller capital account convertibility does not feature in the National Common Minimum Programme.

"It is difficult to understand the keenness of the government in moving along this risky and adventurous course when the benefits of it, if any, would be restricted to a handful of corporates, banks and high net-worth individuals", the statement said.

The CPI (M) has demanded that the recommendations of the Tarapore Committee be debated in Parliament before they are considered for implementation. "It is also appropriate that the recommendations are put under rigorous scrutiny by the Standing Committee on Finance. Until such time, the RBI should not go ahead with their implementation", the statement added.

Acting on the suggestions of an internal task force set up to study the Tarapore report on fuller capital account convertibility, the RBI had on October 31 this year allowed all categories of exporters to retain 100 per cent of their forex earnings in their exchange earners' foreign currency accounts and prepayment of external commercial borrowings upto $300 million without reference to the central bank.

The Central Bank had also said that corporates could raise an extra $250 million in ECBs over the existing limit of $500 million under the automatic route, in a financial year. The RBI also allowed mutual funds to invest $3 billion ($2 billion) overseas. The remittance limit for resident individuals has also been increased from $25,000 to $50,000 in a financial year.