"Putting off the day of full convertibility is costing dearly the small and medium enterprises and retail depositors since they cannot access better opportunities availed by bigger companies," he observed. He was speaking at the Bank of Baroda Centenary Year Maharaja Sayaji Rao Gaekwad III Memorial Lecture.
"India should move to full capital convertibility, since all the arguments against such a step are even more strained than ever," he said.
Even if the Asian crisis was any reason for not moving faster, the way in which central banks have handled the 2001, 2004 and now 2007 financial shocks, we know if crisis occur they can be handled, he said.
He conceded there could be some risks involved but pointed out that no country is immune to risks in financial markets. What we have to know is how to handle risks," he said.
Lord Desai said he was very impressed by the manner in which the RBI handled the upward pressure on the rupee, and the mature way in which Indian business has taken the stronger rupee in its stride rather than rush to Delhi to have the policy reversed.
He also referred to large forex reserves saying there is now a cushion against sudden withdrawal of funds. India has a huge forex reserve which it does not know what to do with.
"Perhaps, if it was explained to the Left parties that large sums of money were shoring up US Treasury bills, it may vote for full convertibility as an anti-imperialist gesture," he said.