G. Padmanathan, ED at RBI, spoke about the concept of Rupee convertibility recently. He mentioned a lot of things against making the rupee “capital account convertible”. A concept that typically means foreigners can buy Indian assets and Indians can buy foreign assets without any control. He talks about the upsides – that everyone else is doing it, that it facilitates free trade, forces a country to have better economic policies and lower deficits etc. Capital Mind ‘s view on this is clear – we need capital account convertibility now. In fact, we needed it yesterday. His objections, or what he calls “negatives”, of such convertibility are: opening up the currency doesn’t necessarily mean money flows to increased productivity as it can even be things like lower taxes. (Our view: That’s what you kept taxes low for, in the first place, to attract investment to something specific. This is not an excuse.) There’s no evidence that opening up the currency ensures capital flows into a country or that they help the country at all. … (Read On…)
[via Capital Mind]
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