MUMBAI: Reserve Bank of India (RBI) governor Raghuram Rajan once again broached the issue of capital account convertibility ( CAC ), stating that it was a goal that the central bank hoped to achieve in a few years.

The governor’s comment on convertibility came at an event in Pune, days after he warned corporates not to take the stability of the rupee for granted. Speaking at an event on the National Institute of Bank Management, Rajan said that the central bank also wanted to move to a system where loans would be benchmarked against a market rate like the Indian equivalent of the London Interbank Offered Rate ( Libor ) instead of the base rate which is decided by each bank.

“Over the long term, we have to look at the base rate concept. In a number of countries, they have market benchmark like Libor so that they (banks) need not worry about base rate,” said Rajan

CAC envisages freedom for individuals, fund managers and corporations to invest Indian money abroad. Once CAC is in place, the exchange rate would be entirely determined by demand and supply forces.

There have been several false starts on the country’s move to CAC. In 1997, a committee headed by former deputy governor S S Tarapore had recommended that the move to convertibility would be subject to the financial system achieving several milestones that would put it on a par with international institutions. However, the journey was abandoned following the Asian currency crisis, which created enormous volatility in the foreign exchange market.

A second Tarapore committee in 2006 on ‘fuller’ CAC had recommended a five-year road map to achieve this goal. However, its proposals were also dropped in the wake of the global financial crisis. The next time CAC came up was in the recommendations of the Percy Mistry committee on the proposal to develop Mumbai as an international financial centre.