February 28, 2003, Chandigarh, India
Continue removing capital controls: Survey
New Delhi, February 27
“Surging foreign exchange reserves have provided an opportunity towards further relaxation of existing capital controls. Such measured approach towards capital account convertibility needs to continue”, the Survey said.
The rising reserves also provided a greater flexibility to exchange rate management towards developing deeper market for foreign exchange transactions. The reserves further provided an opportunity to expedite completion of trade liberalisation agenda.
It also said that notwithstanding various reforms, India’s tariffs remained high by Asian and international standards and its trade regime remained relatively restrictive.
The Survey said that medium term balance of payment (BoP) outlook would depend upon several factors. A robust growth in exports remained one of the most critical factors in the long-term viability of the external sector, it said, adding uneven performance of merchandise exports in the recent past, if continued, could introduce a structural weakness in the BoP in the medium term.
“On the import side, given our rising dependence on imported crude oil, the economy needs to be insulated from continuing volatility in international oil prices impacting the BoP and oil security of the country”, the survey said.
Efforts towards strengthening of the services sector also needed to be sustained and intensified to capitalise on the growth opportunities in this sector, it said.
On the inflow of foreign investment, it was pointed out that given the potential for higher direct foreign investment in India, “A further considered liberalisation of the investment regime in this area is likely to result in enhanced foreign investment”.
The Survey said that new initiatives such as refinancing of costly debts and exploring the possibility of using the financial management of sovereign debt would be helpful in further improving the sustainability of external debt indicators of the economy.
The external debt stock of India stood at $ 101.97 billion at the end of September 2002 as against $ 98.49 billion in end of March 2002 and $ 101.13 billion at the end of March 2001.
India, however, continued to lag far behind China in terms of FDI inflow. FDI inflows of 10 select Asian developing countries in 2001 showed that India’s FDI inflows accounted for a mere 0.5 per cent share of world FDI against 6.4 per cent for China, 3.1 per cent for Hong Kong and 1.2 per cent for Singapore.
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