Fight against Re free float
The red brigade’s opposition to capital account convertibility may be bolstered by an unlikely entity - the Reserve Bank of India.
By Aarthi Ramachandran, TNN |
NEW DELHI: The red brigade���s opposition to capital account convertibility may be bolstered by an unlikely entity ��� the Reserve Bank of India. The central bank���s dissenting note to the expert committee, constituted by the finance ministry on encouraging FII inflows, could be cited to support the Left���s argument. Some in the Left also see the RBI note as ���serious opposition��� to the move from within the policy making establishment.
According to Left sources, finance minister P Chidam-baram���s statement a few days ago criticising some RBI employees, who were opposed to the full float of the rupee, was an admission of a ���difference of opinion��� in the policy-making establishment.
Though the Left parties will firm up their strategy for taking on the government over the issue only after assembly elections in five states including West Bengal and Kerala, sources indicated that opposition from a section of the RBI to the push for full capital account convertibility would help the Left���s ���unequivocal opposition��� to the move.
With the CPM having decided to ���take stock��� of the political situation post-assembly polls, given the chill in Centre-Left relations, the issue could precipitate a crisis at the Centre, Left sources said.
The RBI���s dissenting note annexed to the report of the expert group on ���encouraging FII flows and checking the vulnerability of the capital markets to capital inflows���, submitted in November ���05, points out that the document does not address ���the macroeconomic implications of volatility of capital flows���.
The report, available on the finance ministry website, also says that there is a need to examine the likely implications of excessive inflows and outflows on macroeconomic management and suggest contingency measures to deal with such situations. The dissent note is quoted by Left-leaning economist CP Chandrasekhar in a recent article examining the ���policy manoeuvres��� on FIIs flows in the context of an unmatched surge in FII investment to India over the past year or so.
Days after Prime Minister Manmohan Singh said it was time to ���revisit��� the subject of full capital account convertibility, the CPM had issued a strong statement opposing it and also raised it in Parliament during the course of the budgetary debate.
The statement says that full float of the rupee would ���further encourage speculative inflows and reckless commercial borrowings��� given the stock and real estate bubble, currency appreciation and a widening current account deficit in India that is similar to conditions in South East Asian countries preceding the crisis of 1997-98.
Though the CPM has officially demanded that the SS Tarapore Committee, constituted by the RBI to chalk out a road map for the move, be rescinded, sources said the party is awaiting the report to be submitted in July enunciate a strong anti-government position on the issue.
According to Left sources, finance minister P Chidam-baram���s statement a few days ago criticising some RBI employees, who were opposed to the full float of the rupee, was an admission of a ���difference of opinion��� in the policy-making establishment.
Though the Left parties will firm up their strategy for taking on the government over the issue only after assembly elections in five states including West Bengal and Kerala, sources indicated that opposition from a section of the RBI to the push for full capital account convertibility would help the Left���s ���unequivocal opposition��� to the move.
With the CPM having decided to ���take stock��� of the political situation post-assembly polls, given the chill in Centre-Left relations, the issue could precipitate a crisis at the Centre, Left sources said.
The RBI���s dissenting note annexed to the report of the expert group on ���encouraging FII flows and checking the vulnerability of the capital markets to capital inflows���, submitted in November ���05, points out that the document does not address ���the macroeconomic implications of volatility of capital flows���.
The report, available on the finance ministry website, also says that there is a need to examine the likely implications of excessive inflows and outflows on macroeconomic management and suggest contingency measures to deal with such situations. The dissent note is quoted by Left-leaning economist CP Chandrasekhar in a recent article examining the ���policy manoeuvres��� on FIIs flows in the context of an unmatched surge in FII investment to India over the past year or so.
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Days after Prime Minister Manmohan Singh said it was time to ���revisit��� the subject of full capital account convertibility, the CPM had issued a strong statement opposing it and also raised it in Parliament during the course of the budgetary debate.
The statement says that full float of the rupee would ���further encourage speculative inflows and reckless commercial borrowings��� given the stock and real estate bubble, currency appreciation and a widening current account deficit in India that is similar to conditions in South East Asian countries preceding the crisis of 1997-98.
Though the CPM has officially demanded that the SS Tarapore Committee, constituted by the RBI to chalk out a road map for the move, be rescinded, sources said the party is awaiting the report to be submitted in July enunciate a strong anti-government position on the issue.
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