WB economist warns against convertibility

NEW DELHI, May 19: The chief economist of the World Bank, Joseph Stiglitz has advised India against capital account convertibility and stressed that the country could benefit from fierce competition from international investors potentially wanting to come here. While delivering the commemorative lecture for the golden jubilee year celebration of the Industrial Finance Corporation of India (IFCI) on "The East Asian crisis and its implications for India", here on Tuesday, the noted economist said that one needed to "weigh the costs of capital market capitalisation against the benefits that it brings."

Stiglitz, quoting a recent study said that there was no statistically significant relationship between growth or investment and capital account liberalisation. Also pointing out that one study was not definitive, he added, "the positive benefits of capital account liberalisation do not jump out from the data." He argued that one contributing factor was that capital account liberalisation often meant largershort-term borrowing. However, unlike foreign direct investment, short-term capital does not bring with it ancillary benefits.

Stating that some short-term capital were essential for the economy to run, he added, "but when the saving rate is already high additional short-term capital flows jut increase the vulnerability of the economy."