NEW DELHI: India needs better data management before the government makes the rupee freely tradable with other currencies so that it has information available quickly to address any problems.
“A modern real-time system of data management is imperative, lest the ability of the country to diagnose the symptoms of a crisis in time and take corrective action stands compromised,” the government said on 27 February in the Economic Survey for the fiscal year ending 31 March.
The Economic Advisory Council to the Prime Minister has said there is a need to narrow the divergence in the data provided by the central bank and the directorate general of Commercial Intelligence and Statistics. Credible information is a key tool in governance as India opens its economy further.
“The estimation of the various parameters of external sector, so critical for its management, has become arduous,” the survey said. “The movement towards fuller capital-account convertibility may also require a sound system of monitoring the external sector variables.”
While the central bank and the commercial intelligence directorate general record the same transactions, the time period, definition, method and coverage of items differ considerably, the government said.
The Reserve Bank of India relies on foreign currency released or received to cover all flows. The directorate general relies on customs data, which is based on documents filed with the customs, the survey said. Defense imports are not reflected in the directorate general’s data.
India currently allows its currency to be convertible only on the trade or current account. This allows companies and individuals to freely convert rupees into foreign currencies for trade in goods and services.
A panel set up by the central bank submitted its report on making the rupee freely tradable in July last year. The advisory panel formed in March and headed by former Reserve Bank deputy governor S. S. Tarapore recommended a three-phase, five-year timetable.
The steps suggested include segregating government debt management and monetary policy operations, formulating a single legislation for banks, reducing government ownership in banks, keeping current account deficit to gross domestic product ratio at less than 3% and wiping out the revenue deficit by 2009 amongst other measures.
The central bank and the government have not yet taken a decision on implementing the recommendations. India’s budget deficit may narrow to 3.6% of gross domestic product in the year ending 31March, the survey said on 27 February compared with the target of 3.8% set by Finance Minister Palaniappan Chidambaram in the budget in February last year.
India’s current account “is likely” to remain in deficit for a third year, the survey said. The country reported a current account deficit of $9.19 billion (Rs40,545 crore) in the year ended 31 March 2006, compared with $2.47 billion in the year earlier.