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Prepare road map for full rupee float: Manmohan

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`Our position, internally and externally, has become far more comfortable'

CHANGED SITUATION: The Prime Minister, Dr Manmohan Singh, with the RBI Governor, Dr Y.V. Reddy, and the Maharashtra Chief Minister, Mr Vilasrao Deshmukh, at a function in Mumbai to release the third volume of The History of Reserve Bank of India. - Shashi Ashiwal
CHANGED SITUATION: The Prime Minister, Dr Manmohan Singh, with the RBI Governor, Dr Y.V. Reddy, and the Maharashtra Chief Minister, Mr Vilasrao Deshmukh, at a function in Mumbai to release the third volume of The History of Reserve Bank of India. - Shashi Ashiwal

Our Bureau

Comfort zone

Forex kitty

has been steadily growing; it stood at $143.92 billion for the week ended March 10, 2006.

The rupee

has been ruling below Rs 45 a dollar for the last six months.

Bankers, corporates

feel the time is right to go for full capital account convertibility.

Mumbai, March 18

The Government feels the time is now ripe for moving towards making the Indian rupee fully convertible.

The Prime Minister, Dr Manmohan Singh, today asked the Finance Minister and the Reserve Bank of India to prepare a road map for moving towards capital account convertibility.

"Given the changes that have taken place over the last two decades, there is merit in moving towards fuller capital account convertibility within a transparent frame-work," the Prime Minister said.

Dr Singh was addressing a gathering at the Reserve Bank of India today after releasing the third volume of the central bank's history.

The full convertibility of the Indian currency means that the rupee would be made freely exchangeable into other currencies and vice versa.

This would also mean that international investors can buy and sell Indian assets at will.

"The issue was first examined by the Tarapore Committee. Much water was flown down the Ganga since then. Our own position, internally and externally, has become far more comfortable" the Prime Minister said. Ever since India's foreign exchange reserves crossed the $50-billion mark, the issue of full capital convertibility has been keenly debated.

India's forex kitty has been steadily growing during the past few years; it stood at $143.92 billion for the week ended March 10, 2006. The Indian rupee has been ruling below Rs 45 a dollar for the last six months.

According to RBI's latest report on Currency and Finance, released by the Finance Minister, Mr P. Chidambaram, today at the same venue, the monthly average Real Effective Exchange Rate of rupee appreciated by 0.5 per cent and the Net Effective Exchange Rate has appreciated by 0.6 per cent, in the financial year.

Bankers, corporates welcome move

Bankers and corporates welcomed the Prime Minister's move towards the full float of the rupee.

Mr Cherian Verghese, Chairman, Union Bank India, said it is the right time to go in for full convertibility as the economy is doing well and the country's forex reserves are at a comfortable position. It would attract much more capital to the country, he said.

Mr Anil Singhvi, Managing Director, Gujarat Ambuja Cement Company, said the move is in the right direction.

But the road map for the capital account convertibility should be transparent and, given the current environment, convertibility can be achieved in the next two-three years.

The Tarapore Committee had suggested a road map for full convertibility in 1997.

However, the Asian currency crisis had put the issue on the back-burner.

Mumbai as financial hub

"Mumbai, with all its inherent advantages in terms of human capital and commercial acumen, can be positioned as a viable Regional Financial Centre," said the Prime Minister.

Full capital account convertibility will facilitate the transformation of Mumbai into not only a regional but also a global finance centre, Dr Singh said.

"There are multiple options that are possible for such a centre, including as an SEZ (special economic zone), and I am confident that we can make steady but firm progress in that direction.

"The State Government will have to ensure an appropriate enabling environment, in particular the physical infrastructure."

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(This article was published in the Business Line print edition dated March 19, 2006)
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