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= Indus Lauds India PM Proposal, Seeks INR Convertibility(Comtex Business Via Thomson Dialog NewsEdge)By V. Phani Kumar & Anil Varma Of DOW JONES NEWSWIRES MUMBAI, Mar 19, 2006 (Dow Jones Commodities News Select via Comtex) --Several Indian industry chiefs Sunday welcomed Prime Minister Manmohan Singh's proposal for a road map to make the rupee more freely convertible, saying it would further integrate India into the global economy and lead to more foreign investment. But some cautioned that it could further expand India's widening current account deficit and suggested that the government should put measures in place to manage fund flows into and out of the country. The industry support came after Singh said Saturday he sees "merit in moving toward fuller capital account convertibility within a transparent framework," adding that he had asked the country's finance minister and central bank to "come out with a road map on capital account convertibility based on current realities". At present, the rupee is only partly convertible, with regulations restricting the flow of capital into and out of India. "It is a good move, and this is the right time for (full rupee convertibility). The economy and the external sector are strong," said Sanjay Nayar, chief executive at Citigroup India. India's economy has been growing at around 8% in the last two years. The Prime Minister also said Sunday that the government hopes to raise the country's economic growth rate to the 9%-10% range, although he didn't disclose a time-frame for achieving the target. Rahul Bajaj, chairman of Indian two- and three-wheeler major Bajaj Auto Ltd. (500490.BY), described the prime minister's proposal as "forward looking and timely," as India's total foreign debt is at presently about $20 billion lower than the country's foreign exchange reserves, valued at $143.921 billion as of the week ended March 10. "Full convertibility would also lead to arbitrage in interest rates and allow Indian firms to raise funds at lower rates," said Bajaj. Indian companies currently borrow funds at a rate 300-400 basis points higher than their peers in many developed markets. T.V. Mohandas Pai, chief financial officer at software major Infosys Technologies Ltd. (500209.BY), said the timing is right for implementing full rupee convertibility as the Indian economy has "matured" and given the sharp rise in credit demand and India's high rate of investment. "A few years ago, India couldn't have absorbed heavy inflows from foreign investment. But that's no longer true given the sharp growth in demand for credit and in the rate of investment within the country. The country can now easily absorb $50 billion every year," he said. Pai added that capital account convertibility will also enable Indian companies that earn a large part of their revenues overseas to "effectively manage" risks related to currency fluctuations by hedging and short-selling in the forex markets. However, Pai also cautioned that without proper checks, full rupee convertibility could bring in a lot of "hot money," or short-term money, due to the higher interest rates in India, as well as expand the current account deficit further. India's current account deficit in the period of April 1-Sept. 30, 2005, widened to $12.956 billion from $485 million in the same period in 2004. In the same period, the country's trade gap more than doubled on year to $31.635 billion from $14.768 billion as strong industrial growth fueled imports and as global oil prices stayed high. Rahul Bajaj also said the government should be watchful, "especially with high global oil prices, as we import 70% of our crude requirements." Among others who sounded a note of caution, Uday Kotak, executive vice chairman and managing director at Kotak Mahindra Bank Ltd. (500247.BY), said the key concern for India "would be management of the macro economic stability and the ability to handle funds coming into and going out of the country". However, Kotak added that making the rupee fully convertible would probably take a few years as the government road map is yet to be ready. -By V. Phani Kumar; Dow Jones Newswires; 91 98201 29633; [email protected] (END) Dow Jones Newswires 03-19-06 1132ET |