Re: Question: Full Convertibility of the Rupee

[Arvind Kumar <arvind.kumar@rocketmail.com>]

Full convertibility means no control. Obviously, companies prefer no
control over their money! As far as a country is concerned, full
convertibility means attracting foreign capital as companies find it
attractive to invest in such countries. There is also a disadvantage and
this comes in the form of flight of capital. So, unless we have a strong
rupee, you can expect more money to flow out (on the average) than the
amount flowing in. It is also possible that money flows in for
speculative purpose as it happened in SE Asian countries. It is when
speculation starts affecting the economy that it is dangerous. 

As long as speculation remains negligible, it is quite okay. Having
controls means to introduce inefficiency (or so they say). If it is
possible to provide an efficient system to those indulging in genuine
trade while at the same time weeding out speculation, it would be the
best system (Remember, even the New York Stock Exchange imposes limits
on program trading in order to reduce the efficiency of speculation)
What is the best for India? The rupee is not strong and going in for
full convertibility will definitely be detrimental to our economy. There
is also no point in allowing citizens to freely convert without any
purpose as the only reason to convert would be speculation or money
laundering. The best solution is to allow convrtibility to companies who
want to genuinely invest in india.

As to your other question regarding Reserve Bank autonomy, implicit in
such a demand is the assumption that the finance minister is
incompetent. There is no other reason. Hoping for autonomy of Reserve
Bank can only be a dream. After all, the appointments are made by the
Government. It should make no difference whether it is autonomous or
not.

-Arvind
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