PM urges RBI to usher in full capital a/c convertibility

Prime Minister Manmohan Singh on Saturday said India needed to move towards full capital account convertibility.

He said the finance minister and the Reserve Bank of India should revisit the subject as the country has grown internally and externally over the last two decades.

"I request the finance minister and the Reserve Bank of India to come out with a roadmap based on current realities," Singh said at a function here to release the third volume of the History of Reserve Bank of India between 1967-1981.

The cautious approach towards opening of the capital account was warranted, "given the fact that capital flows are known to exhibit a highly cyclical pattern," Singh said.

"It is necessary to attract relatively stable component of capital flows, while de-emphasising the volatile components," he added. Singh said there was a need to build foreign exchange reserves higher than the import cover criterion.

Based on the trade data for February, India's reserves of $144 billion as on March 10 cover 13 months of imports.

"India's policy of building adequate foreign exchange reserves has contributed to maintaining financial stability and added to the economy's resilience," he said.

Singh also said the country's current account gap""after three years of surpluses""was not a cause for concern. The current account deficit was still in a comfort zone and can be easily financed through normal capital inflows, he said.

The current account gap during April-September 2005 was $13 billion, much higher than the $0.5 billion a year ago, according to the latest RBI data.

The prime minister said, inflation and inflation expectations have been contained owing to Reserve Bank of India's prudent policy measures.