Capital a/c to be opened gradually

RESERVE BANK OF INDIA ANNUAL REPORT 2005-06

The Reserve Bank of India (RBI) today said it would gradually open up the capital account, nearly a month after a committee appointed by it to prepare a convertibility roadmap submitted its report.

"In regard to foreign exchange market, the calibrated liberalisation of capital account transactions will be continued," RBI said in its annual report for the year ended June 30.

The committee submitted its a roadmap towards fuller rupee convertibility at the end of July but the central bank is yet to release the report.

The six-member committee appointed by the central bank began working on the proposal after Prime Minister Manmohan Singh said in March the country's economic condition had become more comfortable in the past few years.

The government made the rupee convertible on the current account in 1994, for specific purposes like trade-related expenses, corporate interest payments on loans taken abroad and business travel, among others.

Though capital controls have been dismantled steadily in the past decade, the rupee cannot be converted freely into foreign currency for acquiring assets overseas like shares or real estate.

Also, banks cannot accept deposits in many foreign currencies due to capital controls. Prior approval is needed for movement of capital across borders.

Separately, the central bank also proposed setting up an advisory group to review foreign exchange regulations relating to the booming services sector, which contributes more than 50 per ent of India's gross domestic output.