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Full convertibility option still open, but 4 pc countervailing duty will stay: Sinha

The question of full convertibility of the Indian rupee is still open, Finance Minister Yashwant Sinha said today.

He said the timing of full convertibility would depend on when the preconditions laid down by the Tarapore Committee were fulfilled. The committee, he noted, had suggested a three-year period for making the rupee convertible on both capital and current account on the fulfilment of certain conditions.

The rupee is fully convertible on the current account and as far as foreign institutions are concerned, it is fully convertible even on the capital account.

On whether the government would roll back the four per cent countervailing duty as suggested by the International Monetary Fund statement which described it as protectionist, he said the fund was not the only body which had made this suggestion. This, he observed, was no ground for eliminating the duty. Sinha had halved the earlier eight per cent duty on imports in his last Budget.

Sinha said India's financial system was sound because it had kept its short-term debts always within limits. Besides, there was complete transparency of the financial system, he added.

The fact that financial institutional investors had continued to remain in India was not only because it was profitable for them to do so but also because they had faith in the basic strength of the fundamentals of the system, Sinha added.

Asked if this would mean that the government would go slow on the external commercial borrowings route to finance projects, Sinha said this was not so. In fact, the government had liberalised the norms in the last six months and no guidelines had been changed.

The ECB route had been responsible for large outflow of capital from the east Asian economies, including the real estate sector.

Interestingly, in its annual capital markets report, the IMF has said that controls on inward movement of capital would be a useful tool for some countries, admitting that opening economies prematurely to free flow of capital constituted ''an accident waiting to happen''.

The IMF also suggested that a significant increase in capital flight from worst-affected Asian countries took place long before the crisis hit. The report is the most explicit admission to date that the IMF's views on the efficacy of capital controls has shifted.

UNI