The Hindu : Business : ‘Gradualist approach’ to fuller rupee float: FM

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Thursday, Jun 28, 2007
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‘Gradualist approach’ to fuller rupee float: FM

Special Correspondent

India is on a high growth path
FM invites European investors

NEW DELHI: Inflationary pressures notwithstanding, India on Wednesday ruled out any unduly restrictive controls on external capital inflows while reiterating its resolve on a ‘gradualist approach’ to a fuller float of the rupee on capital account.

In his keynote address at the India-Europe Investment Forum in London, Finance Minister P. Chidambaram said: “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.”

Alongside, Mr. Chidambaram assured European investors and delegates that India would continue to pursue the gradualist approach to economic reforms without any reversals. “The gradualist approach to reforms is also likely to continue in the realm of the capital account of the balance of payments...India has followed a gradualist approach to opening up to capital flows,” he said.

Freedom for NRIs

In this regard, the Finance Minister informed prospective investors that while the rupee was fully convertible on the current account, a number of transactions were also freely permitted on the capital account.

“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.

Explaining the liberal facilities available to foreign investors for monetary transactions, Mr. Chidambaram said that they could bring in capital as also take out their royalties, profits, dividends and capital, including capital gains.

India, Mr Chidambaram said, was on a path of high growth momentum and to sustain that tempo, it would require an investment of over $320 billion in the next five years for developing its infrastructure. Inviting European investors to invest and participate in the country’s growth saga, he said: “The India growth story is real life story unfolding before our eyes. For India, it is a huge challenge. For Europe, it is a huge opportunity.”

This era of growth, he said, was likely to continue for many more years, provided the Government succeeded in attracting both domestic and overseas investment.

Referring to reports on India by Goldman Sachs and McKinsey, Mr. Chidambaram said that the country had the potential to transform itself within two generations, “from the disparately poor nation of 1985 into a nation with a diverse, services-led economy and the world’s second largest middle-class by 2025.”

Attracting FDI

Projecting India as the top foreign direct investment (FDI) destination that European investors should reach out to, the Finance Minister pointed out that although the European Union was the country’s largest source of FDI, having accounted for 25.3 per cent of its total inflows over the past 15 years, yet it received a mere 0.3 per cent of EU’s total worldwide investments.

“As a country that actively seeks foreign investment, I acknowledge that the onus is upon India, and its political and business leaders, to communicate the ‘India opportunity’ to the rest of the world. My presence here, along with Indian business leaders, is part of a determined effort to convey to you the India growth story and win more support for that story,” Mr. Chidambaram said.

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