Oh no! Its back, that Sarkari statement saying that India should soon be ready for full capital account convertibility (CAC). Oh, I am already feeling pretty distressed. And here’s why. Every time the RBI set up a Committee to probe into whether India is ready for CAC, all hell has broken loose. Don’t believe me? Think I have truly lost it this time? Giving me the look of pitying disbelief, eh? Ok. Here goes. I offer you evidence, My Lord.
1996. After successfully completing the first stint at Tier I reforms, the RBI set up the Capital Account Convertibility Committee under the Chairmanship of the then Deputy Governor S S Tarapore to look at whether India was in a position to think about Tier II reforms such as opening the capital account of the Balance of Payments. The Committee presented its findings in 1997, outlining the conditions that the macroeconomic and financial sector environment ought to have in India, so that the CA could be Ced. I mean, the Capital Account could be Convertibled. I mean, opened. What happens next? Just as India announces its readiness to open up, the South East Asians, which were already open, closed. Pun intended. Closed in every sense of the term. Thailand, Indonesia, Malaysia, Korea, Taiwan, Philippines, oh, even the stronger countries like Singapore and Hong Kong suffered their most disastrous exchange rate crisis ever. Reason? Their CA was C, you see. And in India, the report was quietly, errr, given a …errr…dignified..farewell. Ummm…Shelved is the appropriate word, I believe. It indicates a comma, or an infinite coma, over the rather full, stop. Exclamation mark!
Well, guess when the second Committee was assigned its task. Heehee. I am already feeling evil. You guessed right, there. In 2006. And then, in 2006, when we said that we are kinda ready to take on the C of the CA issue to the T, yeah, yeah, remember that lil Lehmann problem? Well, you see, the second report happened and the US kind of just collapsed within 6 months. See what I mean?
It is now in the open. The RBI Committee on CAC is kind of a leading indicator of global instability. Hehehe. We have single-handedly caused the East and the West to collapse completely. It is now your turn, Oil Moghuls! Noone is insulated from the RBI setting up a Committee to probe into whether India is ready for CAC. Oh, now I know why Saudi Arabia is being so kind and not really cutting its oil production. Now I know why the Americans continue to invest in Shale even when the prices are so low. Let the oil price cross $55, and we set up the Committee, seems to be the popular RBI reaction.
The markets are sweating. On the day that the Governor declared that India would be ready for full CAC in a few years, the bulls went into overdrive thinking Kal Ho Na Ho. But Guv seems to be in a good mood. Doesn’t want the globe to be punctured right now, when India is kinda on the anvil of overtaking China. How rum! Let us overtake the devils once and for all, fulfilling our ambition of the past 30 years, and we are ready to give this matter to a Committee.
Beware of the CAC-ophonic consequences, markets! And you too, rating agencies! Jab 50 50 kos dur, koi Moody rota hain, toh RBI kehtee hain, bete upgrade kar. Upgrade kar, nahi toh Committee aa jayegi!