ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Managing the Transition to Convertibility

There is little doubt that moving towards a more open capital account would benefit the country enormously. The domestic foreign exchange market is providing a leading edge in the move to convertibility. The Tarapore Committee should ensure that residual controls on foreign direct investment and external commercial borrowings are removed and sectoral imbalances in the economy are addressed.

JAMAL MECKLAI, C CHANDRASEKHAR

T his article briefly reviews the reforms in the external sector over the last few years, assesses the market response, and examines the possible threats that we need to be conscious of in moving towards fuller convertibility on the capital account (CAC). The first part of the article deals with reforms so far and their bearing on CAC; the second part analyses the market response and exchange rate movements in the context of CAC. The third and final part uses some of the learning from recent crises particularly the south-east Asian crisis to assess where India stands vis--vis certain risk factors.

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