Allow FIIs only on rupee convertibility: Venkat

Singapore: India needs to build up its export -oriented manufacturing sector to achieve a trade surplus and support full convertibility of the rupee before allowing FIIs to invest directly in the country`s stock, commodity futures and options markets, a senior Indian economist has said.

"The access to the Indian markets is finally going to be full convertibility of the rupee," Multi Commodity Exchange of India Chairman Venkat Chary said in Singapore on Friday. Chary made the remarks to PTI after fielding questions from international traders on when FIIs would be given direct access to the booming Indian stock and commodity markets.

"Everyone asks me these questions at conferences which I attend — when will they get access to the Indian market. And my short answer to that is — full convertibility of the rupee, which will take place when we achieve a positive trade balance," he said. "Our exports have to be more than our imports for over a series of years," he added.

He noted that FIIs were especially keen on participating in the Indian stock, futures and options markets on account of the high level of liquidity.

Chary pointed out that the Indian public and private sector was working on long-term development of the manufacturing sector, which in the past has not grown at the pace seen in sectors like information technology.

However, once the manufacturing sector is developed and India achieves trade surpluses from increasing exports, the country would achieve full convertibility of the Indian rupee, Chary said.

This would strengthen the Indian rupee and allow a more manageable approach to the inflow of FII investments, he said.

Speaking after the conclusion of the Futures Industry Association`s Derivatives Conference here, Chary said he believed that India would achieve a trade balance in five years, once the manufacturing sector starts ramping up exports.

He also highlighted advantages for India in years ahead, citing FIIs and foreign investors` preference for India`s democratic processes, free society, flourishing enterprises, young working class population and free press and new media.

India has a "noisy democracy", which at times delays processes, but it also allows innovative thinking, he said.

This Indian system was preferred by foreigners compared to China, where the party-based ruling in Beijing maintains a tight and protective control despite the successful economy, he said.