India to gradually allow full rupee float: FM

Ruling out imposition of restrictive capital controls despite inflow of overseas money putting pressure on inflation, India on Wednesday said it would continue to embark on gradualist approach to fuller rupee float.

"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," Finance Minister P Chidambaram told India-Europe Investment Forum in London.

Assuring European investors that there would be no reversals of economic reforms, Chidambaram said gradualist approach to economic reforms would continue.

"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 was quoted as saying in a statement.

Pointing out that the rupee is fully convertible on the current account, Chidambaram said a number of transactions on the capital account are also freely permitted.

"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.

Foreign investors can bring in capital and take out their royalties, profits, dividends and capital, including capital gains, he said.

Alongside gradual liberalisation of the capital account, India has pursued fiscal consolidation with a determination that has surprised many at home and abroad, the finance minister said.

Stating that India required over $320 billion of investment in infrastructure in the next five years, the finance minister invited the European investors to invest in the country.

"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," he said.

He further said Indian growth story was likely to continue for many more years provided the government succeeded in attracting domestic and overseas investment.

Chidambaram noted that although the European Union was India's largest source of foreign direct investment, accounting over one-fourth of total FDI inflows over the past 15 years, the country received a meagre 0.3 per cent of EU's total worldwide investments, he said.

India's exports to the EU stood at $23.8 billion in the 11 months' period from April 2006 to February 2007, accounting for 21 per cent of total imports.

Meanwhile, India's imports from the EU during the same period stood at $24 billion and accounted for 15 per cent of total imports, he said.

Referring to Goldman Sachs and McKinsey reports on India, Chidambaram said 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.