Psssst! money change?" remember the sleazy sleeve-teasers that used to haunt Mumbai's alleys? They're fast going out of business. You don't see people rubbing greenbacks and sniffing them for crispness anymore, like some hoary contraband ritual.

That's all gone.

Yet, it was quite some stir that the Reserve Bank of India (RBI) managed to cause, at least amongst the consciously dollar-deprived, when it granted resident Indians the option of running a domestic bank account in foreign exchange. A current account, earning no interest (and thus a weak hedge against rupee depreciation), but an account nonetheless-with cheques issued on it- with no limit to the money it may hold.

That quantitative bit is the real change, actually. In an earlier move to relax forex restrictions, the RBI had raised the quotas available to travellers overseas (to $5,000 for individuals and $25,000 for business folk), and stopped squeezing them for every nickel and dime on their return. In fact, said RBI, every Indian would now be free to keep up to $2,000 in cash and travellers' cheques. But if twenty $100 bills were okay under the mattress, wondered observers, why not in a bank? And if placed under the supervision of a bank, why cap the quantity?

The source of the funds must be legitimate, of course. Unspent money, fine. Payments from overseas, good. Gifts, terrific. Dollars bought on the sly to stash away? No go. The RBI is clear that this is about day-to-day convenience in a fast-globalising world, not a launch pad for capital flight. This is also what underpins the logic of the money's permissable uses. Foreign travel, medical treatment, education, online shopping, Internet subscriptions and all the other usual dollar-demanding stuff gets a nod. Buying Microsoft shares? Nothing doing.

Acquisition of foreign assets is not allowed. So anyone trying to dollarise his wealth would still be tempted to resort to the same old bag of tricks (hawala transfers, under-repatriation of export orders et al). Or to wait, instead, for Capital Account Convertibility, which is still a way off. A way off, but-significantly-still very much on India's globalisation agenda. In fact, RBI's latest move can be interpreted as a knob being turned in that direction.

It's a good direction too. From the investor's perspective, the death of the Paternal State idea makes convertibility a freedom issue. Freedom of choice. Choice of investments, no matter what the currency, so long as they're not criminal. From the economy's perspective, the quest for prosperity-far more important- makes it an efficiency issue. An economy integrated with the world economy is subject to the discipline of global market forces, and is thus likely to allocate capital more efficiently than an economy that remains insulated. That's the theory. The precise mechanics may be fuzzy, but it's clear that India can hope for big FDI inflows only once its capital gates offer two-way transit, in and out.

The risk?

Flight of capital, as illustrated by the Asian Crisis' outflow of 'hot money'. An economy needs to be confident of itself, and its ability to attract capital, before going in for full convertibility. To those keen on globalisation as a prosperity formula, this means just one thing: fixing what's broke within, rather than cowering timidly behind militantly guarded gates.

So, what's broke? Less than what once was, going by the Tarapore checklist of 1997, the year the RBI was given independence, fulfilling the most important generally accepted precondition for convertibility, straightaway. Dedication to price stability is paramount.

Five years on, inflation remains comfortably within the 3-5 per cent range. India's dollar reserves, at $65 billion, are solid. The trade balance is good. The banking sector, though, needs attention. That leaves only one other headache. The fiscal deficit, which needs to be 3.5 per cent of GDP or less. If this can be fixed...