Mumbai, July 11: Former Reserve Bank of India deputy governor and capital account convertibilty panel chief SS Tarapore called upon the government to undertake the first phase of measures on the full float of the rupee.

He was delivering the keynote address at the Federation of Indian Chamber of Commerce & Industry in New Delhi on Friday. "The essence of capital account convertibility is liberalisation of outflows for residents and with $29 billion of foreign exhange reserves, the time is apposite to undertake the first phase of measures on capital outflows for residents," Tarapore said.

In his first address after the capital account covertibility report was submitted, the former RBI deputy governor said full float would bring about a quantum jump in the corporate sector's interface with the international economy.

He also called upon Indian corporates to build up `adequate skills' for handling foreign exchange risks once the country goes for the full float of the rupee. In order to benefit from the measures proposed, the corporate sector would need to build up adequate skills for handling foreign exchange risks and be in a position to clearly assess the relative strength of various currencies, he said.

"Corporates should avoid the risk of overheating which could result from a borrowing binge. The corporate sector has much to gain and also much to lose in how it handles the greater freedom to access resources," Tarapore said. This, according to him, is the essence of capital account convertibility for corporate sector.

"India has an inherent advantage in sterilising large capital flows by reducing the monetisation of the fiscal deficit, open market operations and reserve requirements on non-resident deposits", he said. Tarapore said the mandated inflation rate on a three-year average is very reasonable as against the present rate of 6 per cent. Though some concerns had been expressed regarding the proposed parliamentary mandate on inflation, it could be set out in the budget speech and the details of the mandate could be set out in an agreement between the ministry of finance and the Reserve Bank of India.

According to Tarapore, the reduction in the cash reserve ratio from 9.3 per cent to 3 per cent is fairly attainable since automatic monetisation of fiscal deficit is being discontinued and open market operations are becoming a major tool of monetary control.