India's prime minister said on Saturday the country's economic position internally and externally had become "far more comfortable" and it was worth looking into greater capital account convertibility.
In a speech at the central bank in the country's financial hub Mumbai, Prime Minister Manmohan Singh said he would ask the finance minister and central bank to come out with a roadmap to greater convertibility "based on current realities".
The Indian rupee is only partially convertible and India has in the past set out benchmarks for full capital account convertibility, including levels of fiscal deficit and foreign exchange reserves, inflation and non-performing assets of banks.
"Given the changes that have taken place over the last two decades, there is merit in moving towards fuller capital account convertibility within a transparent framework," Singh said.
India's external debt was $124.3 billion at the end of September 2005, up $2.2 billion from the end of June due to higher borrowings by Indian corporates abroad.
Its foreign exchange reserves are nearly $144 billion, exceeding external debt by about $20 billion and enough to cover around 13 months of imports.
The federal fiscal deficit is expected to be 4.1 percent of gross domestic product at the end of this financial year on March 31, lower than a targeted 4.3 percent, although the combined federal and states' deficit is much higher at about 7.7 percent. Inflation is currently running at about 4 percent.
In its Report on Currency and Finance for 2004/05, the central bank said software exports have remained strong despite concerns about protectionist measures from the countries which import them. Also, expatriate Indians continue to send money home at a robust pace, making India one of the world's leading recipients of remittances.
The resilience of the external sector during the current fiscal year was reflected in the fact that a record level of the current account deficit was financed through normal capital flows, it said.
The prime minister's economic advisory council has said it expects the current account deficit for this financial year to be 2.9 percent of GDP, compared with a deficit of 0.9 percent last year.
The central bank also said it expected foreign fund inflows to the booming stock market to remain steady in the near term amid growing investor confidence in Asia's third-largest economy.
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