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Eschew Capital Account Convertibility

Lattars

Eschew Capital Account

Convertibility

A
t this juncture, Capital Account Convertibility (CAC) seems inadvisable. The fiscal situation, for instance, is still not strong enough to permit it. There has been only a small drop in the central government’s fiscal deficit whereas the deficits of the state governments have stayed high. Furthermore, even with this drop in the fiscal deficit the level of public debt remains high at well above 80 per cent of GDP, on a conservative reckoning. Privatisation revenues, to the extent forthcoming, have largely been used as part of the current revenues of the government and not used to retire parts of the debt. The buoyancy in tax yields is largely a reflection of the high GDP growth in recent times and this buoyancy could easily fall if there is an adverse shock to GDP growth. Let us not forget that there is every possibility of a sixth pay commission report which, in these days of competitive populism, should be out before the next general election. State government finances have not yet fully recovered from the implementation of the fifth pay commission. Tax reforms have been slow with even the present value added tax not encompassing the whole country, distorting surcharges applied to the income tax structure and, except for the service tax, no significant expansion of the tax base. Implementation of CAC should wait at least until government finances are on an even keel – tax/GDP ratios are at least 5 percentage points higher, expenditures on unproductive subsidies has been streamlined, and the public debt is on a sustained path of decline. These are the requirements for CAC just on the fiscal side.

There is little empirical evidence to show that CAC or freely flexible exchange rates help augment GDP growth. On the contrary, the fastest growing economy in the world – China – has consistently held its currency to values below market rates. In fact, there is little evidence to suggest that rapid financial sector liberalisation helps GDP growth. Is CAC a policy goal on its own or should exchange rate policy serve the interest of boosting GDP growth rates on a sustained basis?

It took the financial crises of the late 1990s to make the IMF drop CAC from its agenda. India should not play a role in putting CAC back on the IMF’s agenda.

RAGHBENDRA JHA

Canberra, Australia

Gokhale Institute

P
R Dubashi (April 15, 2006) asks the signatories of the letter (March 18, 2006) on the affairs of the Gokhale Institute of Politics and Economics (GIPE) to “modify” their stand about the Servants of India Society (SIS) since, according to him, “it was for the first time, the propriety of the SIS was put to an explicit challenge through a writ petition filed by the employees of GIPE. The petition was dismissed as baseless by the Bombay High Court.” If he had chosen to check why that writ petition was filed, he would have found that it was neither unprovoked nor unjustified.

Earlier to the writ petition, three members of SIS had filed a petition before the charity commissioner, Pune (Application No 16 of 2005 u/s 41A of BPT Act and the subsequent order dated November 14, 2005) making baseless charges against the then GIPE administration without any prior discussion with the concerned people and seeking powers from the charity commissioner to interfere in the administration. The timing of the petition was significant, the beginning of the Diwali vacation when the institute was closed. The order was also obtained during the vacation. The petition strangely cited opponent as “Nil”. The notice was not delivered at the institute office, which was closed. The then administration consequently

(Continued on p 2168)

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Economic and Political Weekly May 27, 2006

Lattars

(Continued from p 2042)

did not have any knowledge of the petition or any opportunity to respond. This was prima facie deliberate subversion of the due process of justice and smacked of mala fide intentions.

When informed of the November 14, 2005 order based on a prayer that contained incorrect charges, the concerned employees thought it appropriate to seek legal advice on the course of action, and on legal advice, filed a writ petition against the charity commissioner’s order giving wide powers to SIS to interfere in administration. The writ petition was dismissed on the ground that the petitioners, being paid employees of the trustees (which is incorrect), could not challenge the trustees. In the order by the judge the allegations contained in the original prayer before the charity commissioner were not discussed.

Dubashi mentions about “due respect” to be given to the trustees under the memorandum of association (MoA) and rules of the institute. Let me humbly point out to him a recent instance of blatant violation of MoA by the SIS. I have been the UGC nominee on the board of the institute since 2000, serving a second term till April 2006. When I was informed of the premature termination of my membership, I took up the matter with UGC to receive a letter from P Prakash of UGC stating unambiguously that I “will continue to be the UGC nominee (on the board) till the relevant date in April 2006”. The saga does not end here. Despite receiving a faxed copy of the letter from UGC on March 20, the present administration of the institute deliberately chose to defy UGC by reportedly holding a meeting of the board on March 25, 2006, without inviting me!

A very able administrator that P R Dubashi had been, apart from being a vice chancellor, may I respectfully urge him to verify the facts above from an independent source, not from SIS or the current administration of the institute. His conscience may then persuade him to join the signatories of the March 18 letter.

SURESH D TENDULKAR

Delhi

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