India says P-notes curb could slow rupee rise

WASHINGTON, Oct 23 (Reuters) India's plans to curb flows of anonymous foreign funds into shares could stem the rupee's rapid appreciation, though that was not the main aim, finance minister Palaniappan Chidambaram told Reuters on Monday.

In an interview on the sidelines of the IMF and World Bank annual meetings in Washington yesterday, Chidambaram also said the government wanted a competitive exchange rate and would offer help to exporters if the rupee rose much further.

The minister said India was in a new situation where money was pouring into the country from abroad as central banks in the West flooded markets with cheap cash and it was looking to protect itself from funds it had no information on.

The Securities and Exchange Board of India, therefore, is proposing curbs on investment instruments known as participatory notes, which it says allow foreigners to make a backdoor-entry into the market without registering with the Indian authorities.

''If incidentally it moderated the rapid appreciation, if it slows down the appreciation of the rupee that is a by-product, but that is not the main aim,'' Chidambaram said, when asked whether he hoped the measures would bring the rupee down.

A beneficiary of strong capital flows, the rupee hit a nine-year high against the dollar earlier this month.

''We would like to have a competitive exchange rate,'' the minister said, adding that the government was not concerned about an appreciation of the rupee as much as a rapid appreciation.

But he said he was not looking for a complete ban on participatory notes -- a proposal put forward last week by India's main communist party, which has threatened to withdraw support from the government over a nuclear energy deal with the United States.

SEBI will finalize its measures on October 25. Announcements of the plans last week have so far sent the stock market down 7.5 per cent as foreign investors have pulled out 1.2 billion, lowering their net investment to 16.7 billion dollars.

Asked whether participants at the IMF/World Bank meetings were worried about the US dollar falling sharply, Chidambaram said: ''That is a concern. Unless the US addresses its fundamental and structural issues the continuous decline of the dollar could have serious repercussions.'' REUTERS ARB DS1120