India should not rush into full capital account convertibility at its current per capita income level of about $2,570, Arvind Panagariya, Chairman of the 16th Finance Commission, has said. Instead, the country should consider this reform only when per capita income reaches $8,000-10,000, he suggested.

Speaking at the 49th Civil Accounts Day celebrations in the capital, Panagariya cautioned that adopting full capital account convertibility would take exchange rate management out of the government and RBI’s hands. “You must remember that if you adopt full capital account convertibility, then effectively exchange rate management is out of your hands. You cannot intervene then,” he said.

“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,” Panagariya added. Emphasising a cautious approach, he said, “I am more conservative on this. I would rather go slow on that one. I would still not suggest that we do that.”

He was responding to a question on whether time was ripe for India to adopt full capital account convertibility.

Meanwhile, India’s exchange rate management, according to Panagariya, has generally worked in the country’s favour since the economic liberalisation of 1991. “If you look at history from 1991, our exchange rate management has been generally a positive contributor,” he observed, highlighting the country’s prudent approach over the years.

Growth Trajectory

Despite his cautious stance on capital account convertibility, Panagariya expressed confidence in India’s long-term economic prospects and its goal of becoming a developed nation by 2047. He asserted that Prime Minister Narendra Modi’s vision of Viksit Bharat (Developed India) by 2047 is not just aspirational but achievable.

“To be categorised as a high-income country by 2047, India must record 7.3 per cent annual growth in per capita income over the next 23 years,” Panagariya said. He noted that India has been growing at an average of 10.1 per cent annually in current dollar terms between 2003 and 2024, and the country is well-positioned to sustain this momentum over the next decade.

“If we maintain this 10.1 per cent growth for the next ten years, GDP will reach $9.5 trillion. In 10 years, we can become a $10 trillion economy,” he projected.

Panagariya also pointed out that India has successfully maintained high growth rates over the past 21 years when measured in real dollars. “That is the reason for my optimism about our future prospects,” he said.

Strengthening Economic Fundamentals

Panagariya credited India’s economic resilience to improved governance and the country’s transition into a competitive and largely open economy. However, he acknowledged that global economic conditions present challenges, particularly in the area of international trade.

“There is no doubt that the global trading system today is not what it used to be,” he remarked, noting that the World Trade Organization (WTO) itself is under immense stress. He highlighted the lack of a functioning Appellate Body at the WTO, calling it a major concern for the global trade framework.