Indian rupee not fully convertible before ’09

Singapore, April 7:

The Indian rupee is unlikely to become fully convertible before 2009, India’s finance minister said in remarks published here on Friday.

The currency is only partially convertible on the current account but full convertibility may only be possible three years from now when India shall have balanced its budget, P Chidambaram said in an interview with Singapore’s Straits Times.

He said he expects a central bank committee looking into the matter to “lay down the milestones and tell us where we are vis-a-vis those milestones.” But he added, “I don’t think in any event we will be ready until we can wipe out the revenue deficit and bring down the fiscal deficit to 3.0 per cent (of total economic output). Which means, not earlier than 2009.”

India’s central bank last month announced it has appointed an expert panel on the rupee becoming a fully convertible currency in a move expected to boost much-needed foreign investment in India’s fast growing economy.

The six-member committee will submit a framework by July 31 after exploring the implications of a rupee float on monetary and exchange rate management, the financial markets and the financial system.

The rupee, which is trading at around 44.6 to the dollar, is now convertible on the current account for trade purposes, allowing companies and individuals to buy foreign currencies for offshore goods and services. However, it is not fully convertible on the capital account, which includes fund and investment flows that are now restricted.

India abandoned a move towards a fully floating rupee after the Asian financial crisis in 1997.

But with foreign currency reserves now at more than $144 billion, the government said allowing the currency to trade freely whould enable easier repatriation of earnings and thus boost foreign investment.