India's rupee to move towards fuller convertibility

The Indian rupee, which is partially convertible, will move toward fuller convertibility in a gradual and "calibrated" manner, Finance Minister P. Chidambaram said on Tuesday.
While India allows rupee convertibility in current account transactions for travel abroad or education purposes, overseas investments or acquisition of assets, classified as capital account transactions, need central bank approval.
"The movement toward fuller convertibility of the rupee will necessarily have to be gradual, sequenced and calibrated to the overall macro-economic situation and emerging needs of the economy," Chidambaram said, according to the Press Trust of India.
Chidambaram was replying in parliament to a question about whether the government would speed up rupee-dollar convertibility.
Last year, a central bank committee called for India to make the rupee more freely convertible over the next five years to realise the country's maximum economic potential.
Economists have long argued that fuller rupee convertibility is needed for India's economy to move ahead at full-throttle and that its brimming foreign exchange reserves now make such a move possible.
Such a move to loosen curbs on trading the rupee against other currencies would rank as one of India's biggest economic reforms.
But the committee said before making the rupee more freely tradeable, India must "improve regulatory and supervisory standards across the banking system" and get its financial house in order, including taming its worsening deficit.
The rupee was made partially convertible in 1994. Fears about leaving the economy vulnerable to global economic shocks have held policymakers back from making the rupee fully convertible.
India's Prime Minister Manmohan Singh called for a roadmap to greater rupee convertibility last year, saying the country's strong economic performance made such a move more feasible.