India will move soon to make currency fully convertible, finance minister declares

India will soon announce how it plans to make its currency fully convertible, the finance minister said Monday, a decade after such plans were shelved following the Asian economic crisis nearly a decade ago.

Photo: India will move soon to make currency fully convertible, finance minister declares

Finance Minister P. Chidambaram told a business conference that he has already discussed the issue with the Reserve Bank of India , the country's central bank, which regulates currency transactions.

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 related to merchandise trade are handled at market rates and without official approval.

Chidambaram's comments came after Prime Minister Manmohan Singh said over the weekend that the country's economic position had become "far more comfortable" and India planned to allow full freedom to convert the rupee into foreign currencies to buy stocks, properties and other capital assets.

Singh said such moves would also help India realize its aim to make its business capital, Bombay , a financial hub in Asia .

"The Prime Minister has made a definitive statement. The RBI will announce steps on it in a few days," Chidambaram said.

India officially fixed the rupee's exchange rate until 1991, when it made the first move to allow the market determine rupee's value in relation to other currencies for select transactions.

Restrictions on most trade-related transactions and remittances were lifted in the following years.

Transactions in some capital assets have also been freed from the central bank's control, but a complete rupee free-float was delayed, fearing the country could face a crisis like the East Asian currency turmoil of 1997. That crisis devalued currencies of many countries, wrecked growth and left thousands of people unemployed.

But India 's rising foreign exchange reserves, which now total $US144 billion, and a strong rupee appear to have contributed to the government's latest liberal stance.

So far this year, the rupee has appreciated nearly 1.5 percent against the U.S. dollar. On Monday, the dollar bought 44.423 rupees.

Many institutional investors are transferring savings to India because of higher interest rates and a booming stock market, and rising exports have brought in more U.S. dollars and other foreign currencies, reports the AP.

D.M.