Arvind Panagariya, Chairman of the 16th Finance Commission, has advised India against rushing into full capital account convertibility at its current per capita income level of about $2,570. He suggested that the country should consider this reform only when per capita income reaches $8,000-10,000.
During the 49th Civil Accounts Day celebrations in the capital, Panagariya warned that adopting full capital account convertibility would relinquish exchange rate management from the government and RBI’s control. He emphasized the importance of being cautious in this matter and stated, “I would still wait for quite a while for per capita income to rise to $8,000-10,000 before looking at full capital account convertibility.”
While discussing India’s growth trajectory, Panagariya expressed confidence in the country’s long-term economic prospects and its goal of becoming a developed nation by 2047. He highlighted the need for India to maintain 7.3% annual growth in per capita income over the next 23 years to achieve high-income country status. Additionally, he noted that India has been growing at an average of 10.1% annually in current dollar terms between 2003 and 2024, positioning the country well to sustain this momentum over the next decade.
Panagariya also acknowledged India’s successful exchange rate management since the economic liberalization of 1991 and stressed the importance of maintaining high growth rates to reach economic milestones. He credited India’s economic resilience to improved governance and transition into a competitive and largely open economy.
Despite his optimism about India’s economic future, Panagariya recognized the challenges posed by the current global economic conditions, especially in the realm of international trade. He highlighted the stress on the World Trade Organization (WTO) and the absence of a functioning Appellate Body as major concerns for the global trade framework.
In conclusion, Panagariya urged a cautious approach towards full capital account convertibility and emphasized the need to strengthen India’s economic fundamentals to navigate the evolving global economic landscape.
