According to RBI Vice President TRabi Sankar, India is on the verge of a fundamental shift towards a complete shift in its capital account, which may need to be managed by a combination of measures.
Rabbi Sunker said in a speech at the Forex Dealers Association on Thursday that changes such as opening fully accessible routes for debt investment and strengthening integration with the global market will make India’s capital account more open. Said it would be.
“The rate of change in the conversion rate will only increase with each of these and similar measures,” Rabbi Sunker said, adding that this requires more effective management of flows. “Therefore, there is a responsibility to effectively manage such flows by properly combining capital flow measures, macroprudential measures and market interventions.”
Fully accessible routes give foreign investors free access to major government securities, including benchmark 5-year, 10-year, and 30-year bonds. This route was opened when India attempted to enter the global fixed income index.
Over time, the entire government’s securities issuance will be subject to non-resident investment on a fully accessible route, Rabbi Sunker said. “Experiences in other countries suggest that non-residents are unlikely to hold most of the outstanding shares, but significant debt holdings make India vulnerable to the risk of a sudden reversal. Maybe, “he added.
The Vice Governor also talked about other changes that may need to be considered in the capital account.
For example, liberalized remittance schemes may need to be reviewed with changing requirements in mind, such as higher education for young people and start-up requirements. It is related to personal economic variables. “
In the light of greater openness, integration between domestic and foreign financial markets may increase. “As G-sec is held by global custodians and traded abroad, more and more non-residents will hold Rupee’s assets and acquire Rupee’s exposure,” said Rabbi Sunker. Said.
This would raise questions such as whether India is ready to allow such non-residents to hold a rupee account. “This is an important early step in the internationalization of the rupee and should be considered carefully.”
He added that the appropriate mechanism of information flow needs to be considered so that currency and interest rate management remains effective in a large offshore trading environment.
In all of this, he said, the work of regulators would be like the work of gas regulators.
“As someone once said, the job of a regulator is like a gas regulator in the kitchen. It can’t guarantee the quality of the food, but it can prevent the kitchen from exploding,” said Rabbi Sunker. Said. “Cooking quality, the efficiency with which a country’s investment needs are met, depends on how well authorized dealers and other intermediaries can adapt to the ever-increasing convertibility of their capital accounts.”
More complete capital account convertibility must be accompanied by a regulatory agency: RBI’s Rabi Sankar
https://www.bloombergquint.com/economy-finance/fuller-capital-account-convertibility-must-come-with-regulators-attached-rbis-rabi-sankar More complete capital account convertibility must be accompanied by a regulatory agency: RBI’s Rabi Sankar