Stage set for full float on capital account

New Delhi, Mar 20: The stage is set for India to move towards full convertibility on capital account with Finance Minister P Chidambaram today stating that the next steps on the crucial move would be announced by the government and the Reserve Bank of India in the next few days.

''On capital account convertibility, the RBI and the government will announce the next steps in the next few days'', Mr Chidambaram said at the meeting of CII National Council here.

The Finance Minister's statement comes close on the heels of Prime Minister Manmohan Singh announcing in Mumbai on Saturday that the time was ripe for India to move towards the full float on capital account with the foreign exchange reserves exceeding 140 billion dollar. Besides, there has been a fair amount of stability in the foreign exchange market without any upheavel in the exchange rates.

As for the liquidity crunch being faced by the banks, the Finance Minister said he would be meeting the bank Chairmen in the next couple of days and the issue would be addressed.

He informed the captains of industry that the Reserve Bank of India would be making all efforts to provide adequate money to meet their requirements. ''The RBI Governor has assured me that he will provide adequate liquidity to the industry'', Mr Chidambaram said.

The RBI would be coming out with the annual Credit Policy review next month.

The Finance Minister asserted that to make up for the delays of the past, the government was determined to give contracts for the mega power projects by the end of the year. ''Mark my words, we will give contracts by December 31,2006'', he said. But he asked the industry to stop ''mourning '' about lack of infrastructure.

Instead, the industry should take it as a big opportunity for investment.

''Who is going to build infrastructure? CPWD ? It is going to be built by the industry and the foreign investors'', he said.

Mr Chidambaram said the government would soon announce a road-map for introduction of the Goods and Services Tax (GST) so that the converged service tax and the excise could be launched from April 2010. But he gave enough indications of the further increase in the service tax from 12 per cent to may be 14 or 15 per cent after the new tax dispensation is brought about.

As regards the Value Added Tax, the Finance Minister announced once again that the BJP-ruled states have agreed to come on board from April, this year. But insofar as the Uttar Pradesh and Tamil Nadu are concerned, he quoted Winston Churchil. '' What should I say about these states; It is like Churchil saying mystery wrapped in a riddle .....'', he said sarcastically.
The Finance Minister said the policy paper on boosting the electronic hardware, as per the announcements in the Budget, would have to be approved by the Cabinet. The paper is ready but it has to go to the Cabinet, he said. Promising to gradually demystifying the Budget-making exercise, the Finance Minister said his Budget has given a base for promoting the manufacturing sector which has only 19 per cent contribution to the national output.

''The services are expanding faster'' and the manufacturing must catch up. This is why he has given sops to the specific sectors like small cars, man-made fibre, leather and footwear.

The government has given and would continue to give priority to the agriculture and the rural infrastructure through the instrument of Budget and other fiscal policies because there is an ''acute suffering in rural India''. Government has provided higher allocations for irrigation and other rural infrastructure to boost the agricultural sector.

The Finance Minister said if there was one powerful message in his Budget, it was about containing the Fiscal Deficit to 3.8 per cent of the GDP. He reiterated his commitment to stick to the Fiscal Responsibility and Management Act.

Reacting to the industry's comments on the increasing number of Free Trade Agreements being signed by India, the Finance Minister said these were signed out of the ''economic and geo-political considerations''. He said some impact on the local industry was unavoidable.

He said while there were complaints about lack of monitoring the way money was spent, there was not much that the Centre could do.

This was because of India's federal structure. ''At best, the Centre can put conditionalities for releasing funds. That is what the government has done for certain programmes for rural electrification''.

UNI