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Freedom for residents to hold assets abroad urged

Former deputy governor of the Reserve Bank of India S S Tarapore today advocated for certain freedom to resident individuals on their holding of capital assets abroad.

Expressing his displeasure over the total ban on holding capital assets abroad by resident Indians, Tarapore said that it was unbecoming of a mature central bank to put such punitive controls which infringe on personal liberty.

In the league of capital liberalisation, the Indian exchange control needs a wake up call unless it wants the unenviable honour of receiving the wooden spoon from China which might soon unveil a series of measures on its currency trade over the next few years, he observed.

He was speaking at a seminar on major policy issues for the bank organised by the Reserve Bank Staff College in Madras today.

Welcoming the proposed Fiscal Responsibility Act or FRA announced by the government in its budget presentations, Tarapore said that the FRA would be a major landmark in economic policy which would have an impact on the working of Reserve Bank of India or RBI in the future.

The FRA would put a certain amount of pressure to ensure fiscal rectitude and greater transparency of operations. A necessary corollary of this is meaningful autonomy for the Reserve Bank together with greater transparency in the formulation of the monetary policy, he said.

In the area of regulation and supervision, he said, there was a pressing need for the RBI to get out of the minutia of regulation and the nature of RBI supervision needs to be essentially in the nature of a backstop for supervision by the boards of the banks. The objective should be to ensure that regulation is light and supervision is strict.

The functioning of bank boards and their relationship with stakeholders needs an in-depth examination and the time has come to set up a commission on corporate governance in the banking sector in the context of change in ownership. There was the enervating problem of the weak banks and this deserved detailed examination, Tarapore emphasised. "We should not throw good public money over a lost cause," he added.

UNI

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