labels: economy - general
India plans full rupee float in phases: Chidambaram news
28 June 2007

Mumbai: Finance minister P Chidambaram has ruled out restrictive capital controls despite inflow of overseas money putting pressure on inflation and said India would continue to follow a gradualist approach to fuller rupee float.

He acknowledged that rupee appreciation was a headache for Indian exporters, but he said the rise was due to huge capital inflows into the country and no immediate steps were planned to curb the currency''s strength.

"We don''t believe in imposing capital controls on inflows. We will keep an eye on the rupee but our policy is a well regulated market determining the exchange rate," he said. "The rupee will find its level, if it hurts any sector unduly, we will help that sector in other ways."

"Large inflows of capital can create pressures that lead to inflation, and/or appreciation of the exchange rate. We have responded with an appropriate mix of policies in a calibrated fashion without imposing any unduly restrictive capital controls," Chidambaram told India-Europe investment forum in London.

He also assured European investors that there would be no reversals of economic reforms.

Pointing out that the rupee is fully convertible on the current account, Chidambaram said a number of transactions on the capital account are also freely permitted. "There is de facto full capital account convertibility for non-residents, they can bring in their money and they can take out their money," he said.

Foreign investors can bring in capital and take out their royalties, profits, dividends and capital, including capital gains, he said. Alongside gradual liberalisation of the capital account, India has pursued fiscal consolidation with a determination that has surprised many at home and abroad, the finance minister said.

Chidambaram said the central bank policy tightening and currency strength had helped to moderate inflation and more rate rises may not be needed if the trend continues.

"So far central bank actions have moderated inflation. The rupee rise has also helped moderate inflation to some extent," Chidambaram told reporters on the sidelines of the conference.

"If inflation is contained at current levels and shows a decline, there is no reason why interest rates should go up."

Last week, data showed India ''s wholesale inflation fell to its lowest level in 14 months at 4.28 per cent in the 12 months to 9 June. The signs of slowing price growth came finally after five interest rate hikes in the past year to 7.75 per cent.

The Reserve Bank of India has also largely kept out of the rupee''s way as the currency has surged to nine-year highs versus the dollar, rising about 9 per cent so far this year.

India''s economy, the third largest in Asia, grew 9.4 per cent in the fiscal year ending March, its highest rate in 18 years and second only to China among major economies.

Chidambaram said the intention for this year was to keep inflation at 4.0 to 4.5 per cent. He earlier told the conference that inflation remained a concern for the economy but policies aimed to tackle this issue should not dampen growth.

"We have to strike a balance between growth and inflation. The politically tolerant level of inflation in India is 4-4.5 per cent and we are aiming to keep it at that level," he said, noting that factors such as oil prices would be key.

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India plans full rupee float in phases: Chidambaram