Admitting that managing capital flows is a challenge for the economy, Reserve Bank of India Governor Y V Reddy said the country will go in for full capital account convertibility once the pre-conditions for a liberalized currency regime are fulfilled.
"I am only looking at the timetable by which the pre-conditions are fulfilled. Once the pre-conditions are fulfilled, full capital account convertibility and liberalisation will follow," Reddy said in his address at the Peterson Institute of International Economics in Washington.
He said with opening of trade, it was becoming difficult to manage capital.
"Purely from a management point of view, it is far easier to manage a liberalised capital account than a capital account controlled. We have to recognise that trade is getting more and more open, and if we have more and more open trade, more and more current account, it is very difficult to manage the capital. We have to recognise that," Reddy said.
India is receiving 'copious' flow of funds in the stock market forcing the market regulator and the central bank to tighten controls.
Reddy said before moving to the full capital account convertibility, certain risks have to be tackled.
"If there are some policies which are so risky, those have to be addressed first," Reddy said.
India allows unrestricted movement of currency on current account for trade and business transactions. It has recently liberalised even the capital movement abroad but retains controls on full capital account convertibility.
An official panel, known as Tarapore Committee, had spelt out a roadmap for the capital account convertibility.
More from rediff