PM signals free float Rupee

The Prime Minister8212;who himself was the RBI Governor in 1982-858212;brought the convertibility issue back into the limelight while releasing the third volume of the history of RBI here. After the liberalisation process started in 1991, the rupee has become fully convertible on current account, mainly for trade purposes.

But movement on convertibility of the rupee for capital purposes8212;there are restrictions on converting the rupee into other currencies now8212; has been slow as the RBI adopted a cautious approach, especially after the 1997 East Asian currency crisis that led to flight of capital in those countries.

While moving towards capital account convertibility within a transparent framework, Singh said progress in this regard would facilitate the transformation of Mumbai into not only a regional but a global financial centre.

He said there were multiple options possible for such a centre, including as a special economic zone, and 8220;I am confident that we can make steady but firm progress in that direction.8221; He also wanted the state government to provide an enabling environment particularly adequate infrastructure.

Outlining his vision for Mumbai, Singh today said that the city had the potential to emerge as the new financial capital of Asia and could act as a bridge between the Asian and Western economies. 8220;Mumbai, with all its inherent advantages in terms of human capital and commercial acumen, can be positioned as a viable Regional Financial Centre. It can emerge as a new financial capital and be the bridge between Asia and the West in the world of finance,8221; he said while inaugurating the 16th Asian Corporate Conference here.

Experts say time is ripe for full rupee convertibility on the capital account as the inflation is low, GDP growth is higher at 8 per cent plus and foreign exchange reserves are at comfortable levels above 140 billion. A fully float rupee is expected to boost foreign investments and deepen the markets.

Singh, however, said the cautious approach adopted by the government in moving towards full capital account convertibility has been vindicated in the light of the financial crisis in many emerging economies in late 1990s. The cautious approach of preferring FDI flows to short-term debt was clearly warranted, as capital flows exhibit a highly cyclical pattern. 8220;It is necessary to attract stable component of capital flows while de-emphasising volatile components,8221; he said.

There was a need to build foreign exchange reserves beyond the traditional import cover criterion, he said, adding India8217;s policy of building adequate forex reserves contributed to financial stability and added to the economy8217;s resilience.

India8217;s external sector management has been one of the more notable successes of macroeconomic management, he said, adding, 8220;The widening current account deficit was not a cause for concern, as it was in consonance with the resurgence in investment demand in the economy.8221;

Acknowledging the recommendations of the Ratan Tata-headed Investment Commission, Singh said the government was planning to bring in an alternate dispute resolution mechanism for commercial disputes. And that the government was planning to release additional spectrum to mobile telephone firms to increase telecom penetration.