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Capital Account

Autor:   •  April 13, 2011  •  Essay  •  996 Words (4 Pages)  •  1,605 Views

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CHAPTER 4

CONCOMITANTS FOR A MOVE TO FULLER CAPITAL ACCOUNT

CONVERTIBILITY

4.1 This Chapter reviews some key macro-economic indicators since 1996-97

and against this backdrop, certain steps are set out to enable a move to FCAC.

Policies for macroeconomic stability in an open economy environment need

greater attention. The fiscal-monetary policies, exchange rate management,

prudential, regulatory and supervisory safeguards and measures for development

of financial markets all assume importance (some of these issues are discussed in

subsequent Chapters). The implementation of these measures and the pace of

liberalisation are a simultaneous process.

Macroeconomic Indicators

4.2 Table 4.1 sets out select macroeconomic indicators comparing the position

as of 1996-97 and 2005-06. The real sector, monetary and external sectors show

improvement while the fisc continues to be of concern. The level of foreign

exchange reserves is at an all time high and the net foreign exchange assets (NFA)

are well in excess of the reserve money (RM) and are equivalent to one fourth of

the money supply. Unlike some countries, which have accumulated their foreign

exchange reserves through current account surpluses, the build up of the Indian

forex reserves has largely been the result of capital inflows. (Table 4.2)22

Table 4.1: Select Macroeconomic Indicators

1996-97 2005-06

I. Real Sector

Real Growth Rate (percentage) during the year 7.8

7.5 (Three year average ended

1996-97)

8.4

8.1 (Three year average

ended 2005-06)

Rate of Growth of Industrial Production

(percentage)

6.1 8.1

II. Monetary Sector

Inflation Rate (measured in terms of WPI)

Year on year

5.4

9.0 (Three

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