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India will announce capital account convertibility of the rupee in the next few days, The Hindu reported quoting Finance Minister P.Chidambaram. The Finance Minister with the Reserve Bank of India had discussions on the issue and the announcement would be a part of the Union Budget for 2006/07.

The full float of the rupee, which Prime Minister Dr. Manamohan Singh favoured, would facilitate conversion of the rupee into foreign currency and vice versa. It is believed that the decision will help attract greater investments.

At present the rupee is convertible on current accounts, basically for trade purpose.

However, the Communist Party of India (Marxist) (CPIM), a major partner of the ruling alliance, said that the move would be disastrous for the country.

Countering Dr. Singh's observation that the country could go in for fuller convertibility, as the economy was healthy and Sensex on the rise, CPIM pointed out that the stock market indices were going up because of foreign institutional investors and hot money. Such funds would flow out of the country, if there was any change in the tax structure leading to instability, CPIM said.

GW

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