NEW DELHI, Sept 2: India should make the rupee more freely convertible over the next five years to realise the country’s `maximum’ economic potential, a central bank committee has urged.

Such a move to loosen curbs on trading the rupee against other currencies would rank as one of India's biggest economic reforms.

“Capital account convertibility” should be treated “as a means to realise the potential of the economy to the maximum possible extent,” said the six-member committee set up in March to lay out a rupee convertibility roadmap.

Economists have long argued that fuller rupee convertibility is needed for India's economy to move ahead at full-throttle and that its brimming foreign exchange reserves now make such a move possible.

But fears about leaving the economy vulnerable to global economic shocks have held policymakers back from taking such a step.

“Given the huge investment needs of the country and that domestic savings alone will not be adequate to meet this aim, inflows of foreign capital become imperative,” the panel said in the report on the central bank's website on Saturday.

But, before making the rupee more freely tradable, India must “improve regulatory and supervisory standards across the banking system” and get its financial house in order, including taming its worsening deficit, said the committee.

The shift toward fuller convertibility should be staggered over three phases starting in the current financial year, the committee advised.

The rupee was made partially convertible in 1994. It can be converted for such purposes as foreign business trips. But there are still curbs on converting the rupee to buy foreign assets like property and cross-border capital movements need approval.

—AFP