The Hindu Business Line : Capital controls come in handy during crisis: Soros

BIZ TONE: Mr George Soros, US global financier and philanthropist, with Mr Saroj Kumar Poddar, President, FICCI, at a meeting with businessmen in the Capital on Tuesday. — Kamal Narang

New Delhi , Dec. 19

India need not make its currency fully convertible on the capital account as capital controls can at times come in handy in containing crisis, legendary global investor, Mr George Soros, has suggested.

"I don't think so," Mr Soros said, when asked whether India should go in for fuller capital account convertibility at this moment. He, however, said that India must be careful about the increasing inflow of capital into the growing economy.

At the same time, he added that capital controls should be used in exceptional situations and pointed out that they are not perfect arrangements.

"It's better if you can avoid it (capital controls), in general, capital controls are rather harmful. I think there are times when there is room for capital controls. In times of crisis, capital control is one of the ways you can contain them," he said after releasing his book The Age of Fallibility: Consequence of the War on Terror at a FICCI organised function here on Tuesday.

`Avoid overheating'

Stating that the Indian economy as well as the financial markets were witnessing a boom, Mr Soros pointed out that it was for the authorities to prevent the boom from becoming excessive to avoid overheating.

"I don't think capital controls would be the right way to do it (avoid overheating)," he added.

Asked to comment on the Indian stock market and whether the indices were overheated, Mr Soros said that it was clear the market was heating up. "Whether it is overheated or not, I am not in a position to judge", he said.

Attract more FDI

On foreign direct investments (FDI), Mr Soros said that India has to create conditions (conducive environment) if it wanted to attract more direct investments.

Asked whether he would like to take a bet against the Chinese currency, widely considered as mis-aligned, given that the Chinese Government has $1 trillion to back up its position, Mr Soros said it (Chinese currency) already is flexible and would prove to be probably flexible.

"I hope they would be flexible enough to avoid protectionist measures which could really disrupt the world economy. The forward rate for renmimbi is already discounting a 5 per cent revaluation, which is somewhat faster than what happened in the last two years," he said.

Gear up for carbon tax

On global warming, Mr Soros said that he does not expect India to be leading the world in global warming. He, however, said that India should be ready to participate in the global efforts to deal with global warming.

"Coal is a killer. I think a carbon tax should be applied universally and India should be prepared, if and when America is ready to do it at home, to do it here also," he said.