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Tarapore Committee Report Overview

The Tarapore Committee was constituted by the RBI in 1997 under Dr. S.S. Tarapore to develop a roadmap for achieving Full Capital Account Convertibility (FCAC) in India. The committee recommended a phased approach from 1997-2011, with certain pre-conditions to be met such as maintaining inflation between 3-5%, reducing fiscal deficit, and improving the financial sector. The report outlined what FCAC entails and its objectives of facilitating growth and improving financial sector efficiency. It also described signs that should be achieved before further opening the capital account. While RBI implemented some recommendations, it did not follow all of them and introduced additional measures regarding banks, foreign investment rules, and external sector policies.

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120 views10 pages

Tarapore Committee Report Overview

The Tarapore Committee was constituted by the RBI in 1997 under Dr. S.S. Tarapore to develop a roadmap for achieving Full Capital Account Convertibility (FCAC) in India. The committee recommended a phased approach from 1997-2011, with certain pre-conditions to be met such as maintaining inflation between 3-5%, reducing fiscal deficit, and improving the financial sector. The report outlined what FCAC entails and its objectives of facilitating growth and improving financial sector efficiency. It also described signs that should be achieved before further opening the capital account. While RBI implemented some recommendations, it did not follow all of them and introduced additional measures regarding banks, foreign investment rules, and external sector policies.

Uploaded by

Raghav Mittal
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd

Tarapore Committee Report

Prepared By- RAGHAV MITTAL


GAURAV RAO
UTKARSH SAH
Introduction
Tarapore Committee was constituted by the RBI under
the Chairmanship of Dr. S.S. Tarapore to prepare a
roadmap towards Full Capital Account Convertibility
(FCAC).
The Committee submitted its report in May 1997.~
Result of "no clear definition of CAC " in India
Need For 1997 Committee
Tarapore committee observed that the capital controls
can be useful in insulating the economy of the country
from the volatile capital flows during the transitional
periods.
It recommended the implementation of CAC for a 3
year period i.e. 1997-1998,1998-1999 and 1999-2000
and had set out detailed pre-conditions for moving
towards CAC.
Capital Account Convertibility(CAC)
Freedom of currency conversion in relation to capital
transactions in terms of inflows and outflows.
 Committee's version of CAC:
CAC refers to the freedom to convert local financial
assets into foreign financial assets and vice versa. It is
associated with changes of ownership in
foreign/domestic financial assets and liabilities and
embodies the creation and liquidation of claims on, or
by, the rest of the world. CAC can be, and is, coexistent
with restrictions other than on external payments.
Objectives Of CAC
To facilitate the economic growth through higher
investment by minimizing the cost of both equity and
debt capital.
To improve the efficiency of the financial sector
through greater competition. To provide opportunities
for diversification of investments by residents
Move Towards CAC
• The report of this committee was made public by RBI
on 1st September 2006.
Three phased adoption of CAC scheme:
• 2006-07 (Phase I)
• 2007-08 and 2008-09 (Phase II)
• 2009-10 and 2010-11 (Phase III
Signposts For Moving Towards CAC
Gross Fiscal Deficit of the Centre as a percentage of GDP should be 3.5% for
1999-2000 (4.1% in 2005-2006).
Inflation rate should remain between an average 3-5% for 3years (1997-2000)
(4.6% in 2005-2006).
In Financing sector, the Gross NPA's as a percentage of total advances of the
public sector public banking system should be 5% by 2000 (5.2% in 2004-
2005).
Average effective CRR for the banking system should be 3 %for 1999-2000 (5%
in 2004-2005).
A consolidated sinking fund set up to ensure smooth repayment of borrowings.
Monitoring Exchange Rate band of +/-5.0% around the neutral Real Effective
Exchange intervene of RBI. Rate (REER) with no intervene of RBI.
Designing external sector policies to increase current receipts to GDP ratio
such that DSR comes down to 20% from 25%.
Recommendations..
RBI didn't implement all the recommendations and took a number of
additional measures like:
 Removal of tax benefits to NRIs.
 Greater autonomy to RBI.
 Complete cheek on fiscal deficit.
 Disallowing investment channel led through a particular country (like
Mauritius).
 Reduction of government stake in banks from 51 percent to 33 percent.
 Allowing industrial houses a stake in existing banks allowing them to
open a new banks.
 Allowing enhanced presence of foreign banks.
 10 per cent voting limit for investment it banks should be scrapped.
 Non-resident corporate should be allowed to invest in Indian markets.
Continued..
 All individual NRIs should also be allowed to invest in Indian
Market.
Raising the ceiling on External Commercial Borrowing (ECB).
Banning Participatory Notes (PNs) and phasing out the
existing PNs within one year.
Enhancing the ceiling on government debt from $2 billion to
10 percent of issuance and $1-5 billion to 25 per cent of new
issuances in a year of corporate debt.
Building adequate reserve and limiting the current account
deficit to under 3% of GDP. All banks should be brought
under Companies Act.
THANK YOU

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