India will have to move in the direction of full capital account convertibility in order to play a meaningful and responsible role in the global economy, Jayant Sinha, Minister of State for Finance, has said.

Capital account convertibility is also important for the country to deepen and broaden its capital markets, Sinha told reporters on the sidelines of a conference organised by pension regulator PFRDA, on Wednesday.

Full capital convertibility means local currency can be converted into foreign currency and back, for capital transactions. A foreign investor can thus repatriate money in his own currency. Currently, however, India allows full convertibility only in the current account and not in the capital account.

“There are many policy measures and many things we have to do over a period of time if indeed India has to become one of the top three economies in the world,” Sinha added.

The Deputy Finance Minister’s remarks are significant as they come close on the heels of RBI Governor Raghuram Rajan’s statement last week that the central bank was looking to allow full capital account convertibility in a few years.

Recently, India has taken several important policy steps, such as allowing international financial services centres in enclaves within the country.

Such initiatives can be a success only when there is a full ecosystem and an enabling framework, including capital account convertibility, say capital market experts.

‘Retirement market’ Sinha also said that the government was focused on expanding the ‘retirement market’ in India, for which several initiatives have already been taken recently.

Besides stressing on the need to allow more sophisticated products in the pension market, it is also important to ensure that more pension monies flow into equity markets, he added.

Sinha said that expanding the ‘retirement market’ would bring India three benefits: it would protect citizens after retirement, result in flow of long-term funds into building infrastructure and help reduce volatility in the Indian stock markets.

NPS withdrawal The Minister said prospective New Pension Scheme (NPS) subscribers should not get “bogged down” by the fact that NPS attracts tax at the time of withdrawal on retirement. “What is important is — are you saving enough for retirement,” he said.

Later, Pension Fund Regulatory and Development Authority (PFRDA) Chairman Hemant Contractor told reporters that the GN Bajpai committee report will be taken up by the PFRDA Board in the next 2-3 weeks.

The panel had, among other things, recommended that government employees subscribing to NPS be allowed to choose their own pension fund managers, which could open the doors for private fund managers to manage pension monies of Central and State government employees.

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