The issue of capital account convertibility (CAC) had to be taken forward after taking into account the costs and benefits of such a measure, said D Subbarao, the governor of the Reserve Bank of India (RBI).
“Capital account convertibility is a process, not an event. I personally believe we should go forward,” he said in reply to a question raised by an audience member at a panel discussion held by RBI here on Friday. Subbarao’s predecessor, YV Reddy, however said there was a rethink among economists and policy analysts over the issue. “The lessons of the global crisis are in favour of less enthusiasm for capital account convertibility,” he said.
Prime Minister’s Economic Advisory Council Chairman C Rangarajan felt that there was a need to proceed with CAC but not at a fast pace.
“We don’t want CAC to be a channel for outflow of money,” M Narasimham, also a former RBI governor, said.
Shankar Acharya, former chief economic adviser to the finance ministry and a member on the board of Indian Council for Research on International Economic Relations (Icrier), said there was unanimity regarding the benefits of full free trade but not so in the case of CAC. “There is a ground for general debate” on the issue, he added.
Andhra and the RBI connection
Over the last three decades, Andhra Pradesh in general and Hyderabad in particular has had a competitive advantage in producing RBI governors, according to Acharya. What prompted Acharya to make this observation, evoking laughter from the audience, was that three out of four people seated on the dais hailed from Andhra. They were former RBI governors YV Reddy and M Narasimham and present governor D Subbarao. The fourth person was C Rangarajan, who is not from Andhra but was governor of the state for five years.