UPDATE 1-India for gradual capital account opening-cbank

* To keep crisis lessons in mind – cbank head

* No plans to impose Tobin tax on currency transactions

* Prefer longer-term to shorter-term capital inflows
(Updates with details)

MUMBAI, May 12 (BestGrowthStock) – India will liberalise capital
account gradually, keeping in mind lessons from the global
credit crisis, and there are no plans to impose Tobin tax to
curb currency speculation, the central bank head said.

“Our position is that capital account convertibility is not
a stand alone objective but a means for higher and stable
growth,” Reserve Bank of India (RBI) Governor Duvvuri Subbarao
said in a speech, delivered at a conference hosted by the Swiss
National Bank and the IMF in Zurich on Tuesday.

“As regards a Tobin type tax, we have not so far imposed
nor are we contemplating one. However, it needs reiterating
that no policy instrument is clearly off the table and our
choice of instruments will be determined by the context,” he
said.

The speech was posted by the RBI on its website
www.rbi.org.in on Wednesday.

Tobin tax is a transaction tax on currency conversions
intended to curb volatility and speculation.

“We believe our economy should traverse towards capital
convertibility along a gradual path — the path itself being
recalibrated on a dynamic basis in response to domestic and
global developments,” Subbarao said.

Foreigners have invested a net $6 billion in Indian stock
markets so far in 2010, adding to record capital inflows of
$17.5 billion in 2009. The inflow has helped the rupee gain
about 2.7 percent this year, after rising 4.7 percent last
year.
Subbarao said the central bank’s preference was for long-term
equity inflows, rather than short-term debt flows.

“Our policy has been quite stable,” he said, referring to
emerging economies that had opened up and then tightened rules
when flows became volatile.

“Our policy on equity flows has been quite liberal.”

Subbarao reiterated the exchange rate is not guided by a
fixed or pre-announced target or band.

“Our policy has been to intervene in the market to manage
excessive volatility and disruptions to the macroeconomic
situation. This volatility centric approach to exchange rate
also stems from the source of volatility which is capital
flows,” he said.

Stock Market Investing
(Reporting by Anurag Joshi; Editing by Ranjit Gangadharan)

UPDATE 1-India for gradual capital account opening-cbank