Experts advise relaxation of Indian currency controls


Sun, Sep 03, 2006 - Page 11

A panel of experts appointed by India's central bank has recommended an easing of the country's capital controls over the next five years to make the currency fully convertible.

The recommendation comes almost a decade after similar plans were shelved following the Asian financial crisis.

The panel, which submitted its report late on Friday, suggested three phases for easing restrictions on capital flows by March 2011, but said the moves must be tied to achieving set targets for reducing the government's fiscal deficit, inflation and reforms in the financial sector.

Yesterday, Reserve Bank of India Governor Y.V. Reddy said the central bank would consider implementing some of the measures suggested for the first phase and that a final decision on the issue would be made within two months.

The panel was set up in March after Prime Minister Manmohan Singh said the country's economic position had become "far more comfortable," allowing it to consider a transition to a fully convertible rupee.

Singh had said such moves would also help India realize its aim of making its business capital, Mumbai, a financial hub in Asia.

India's rupee is only partially convertible, meaning that most capital account transactions -- investment money flowing in and out of the country -- are subject to approval by the central bank. Other transactions are handled at market rates and without official approval.

The expert panel said "capital account liberalization can be beneficial when countries move in tandem with a strong macroeco-nomic policy framework, sound financial system and markets."