India needs to take many policy measures over a period of time, including moving towards full capital account convertibility, to become a leading global economy, Minister of State for Finance Jayant Sinha has said.
“There are many policy measures and many things that we have to do over a period of time, if indeed India has to become a leading global economy… We have to make it possible for our capital markets to be broader, deeper and for that to happen, capital account convertibility also becomes important,” Sinha told reporters at an event here.
The Minister said that India has became more and more open in the last few years.
“Definitely, we have to play our rightful, responsible role in the global economy, we have to move in that direction (capital account convertibility),” Sinha said.
The Minister’s statement assumes significance as Reserve Bank (RBI) Governor Raghuram Rajan had recently said that the central bank is looking at allowing full capital account convertibility in a few years.
Stating that the RBI is fairly open to capital inflows, the Governor had said: “The only place today that we have some restrictions is inflows into debt, especially very short-term debt.”
Full capital convertibility means a foreign investor can repatriate his money into his own local currency at will, which is not allowed in the country as of now.
Finance Minister Arun Jaitley had also recently launched the country’s first international finance centre in Gujarat.
Full rupee convertibility can go a long way in the effective functioning this global financial services hub.
It may be noted that many analysts had credited RBI for its policy of partial capital control, which helped it tide over the impacts of the currency meltdown in many South Asian economies which had full capital convertibility in 1997-98.
In May-August 2013 also, capital control helped the country from going to the dumps following the taper talks by the US Federal Reserve. Even then the country saw as many as over USD 20 billion being pulled out by foreign investors.
Following the June 1991 liberalisation, the government and the RBI have been progressively lifting curbs on capital flows, which saw the FII investment into domestic debt rise to USD 31 billion as of now.
Stressing that the old age traditional support system for retired people is increasingly eroding in India, Sinha highlighted on the need for making National Pension System (NPS) universal.
“We are going to support retired people. If we will make NPS universal, then we will have a pool of savings, which can finance infrastructure projects,” he said.
The Minister said that the Indian equity markets are one of the most volatile markets in the world and if we will make our pension market smooth and steady, then volatility in equity market will be less and people will start investing more in stock markets.
NPS was initially introduced for the central government employees joining on or after January 1, 2004.
Later, in order to facilitate organised entities including public sector organisations, a customised version of NPS, known as NPS-Corporate Sector Model was introduced in December 2011.