Tarapore report-II recommends gradual transformation to full Capital Account Convertibility (CAC). This article analyzes whether the Indian economy is strong enough to adopt full CAC or not.

We want to make Mumbai like Shanghai, as much so we want to make Indiaan attractive destinationthe so called financial hub of Asia. How is it possible? There is a school of thought which says that this is possible through full CAC (Capital Account Convertibility). The introduction of full CAC is bound to surcharge the economic environment and pave the way for the country as an economic superpower.

Many changes have taken place in the economic landscape since the announcement of the first report by the committee on CAC in 1997 under the Chairmanship of SS Tarapore, the former Deputy Governor, RBI. The Tarapore Committee-I recommended a three-year time frame for complete convertibility by 1999-2000. It put certain preconditions.The purpose of these preconditions was to make India's macroeconomic situation stable enough to meet the vulnerabilities endemic to a free forex regime.The reconstituted Tarapore Committee-II (TC-II) has reviewed the experience of various measures of capital account liberalization in India. It has also assessed implications of fuller CAC on monetary and exchange rate management, financial markets and financial system.

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