Finance Minister P Chidambaram has ruled out full convertibility of the rupee before 2009, saying revenue deficits would have to be wiped out first in the economy.
"I don't think in any event we will be ready until we can wipe out the revenue deficit and bring down the fiscal deficit to three per cent, which means, not earlier than 2009," he said in an interview to the Singapore daily The Strait Times.
The government had set targets in the Fiscal Responsibility and Budget Management Act in 2004 to reduce revenue deficit by 0.5 per cent and fiscal deficit by 0.3 per cent of GDP annually so that revenue deficit is wiped out and fiscal deficit is brought down to three per cent by 2009.
Ahead of the RBI's credit policy on April 18, Chidambaram also said he did not expect interest rates to rise and that the central bank would take steps to inject more liquidity to ease the situation.
"I don't think interest rates should rise....We should expect an easing of liquidity situation," he said
Asked about the booming stock market with BSE Sensex hitting the 11,000 mark, the finance minister said market regulator SEBI was a "competent watchdog and I think it keeps a close eye on what is happening."
The BSE Sensex fell by 157 points Friday after rising by 863 points in one month to touch 11,746. It had increased by 77 per cent in one year.
To a question if there was a bubble, Chidambaram said "nothing has been brought to my notice so far."
"As long as there is no disorderly movement in the markets, I have to assume that investors, both buyers and sellers, know what they are doing," he said.
He, however, cautioned investors to take informed decisions after a careful study.
"Anyone who does not have the aptitude or the ability to make a careful study should go through the mutual fund route," he said.
Elaborating on interest rates, Chidambaram said most of the corporate loans will continue to remain below banks prime lending rates.
Therefore, he said there was no reason to believe that lending to the corporate sector or long-term investments will attract higher rates.
He also said the liquidity has eased a bit in the last week and "I am confident the RBI will take steps to inject greater liquidity."
On Full Capital Account convertibility, the bank has set up S S Tarapore Committee after Prime Minister Manmohan Singh asked the finance ministry and the central bank to work out a roadmap in this regard.
"I don't know what the committee is going to say. I expect the commitee to lay down the milestones and tell us where we are vis-a-vis those milestones," Chidambaram said.
Chidambaram also ruled out hire and fire system and maintained that labour reform was an "exaggerated problem" in the country.
"Nobody has told me that labour policy is a hindrance. It's an exaggerated problem. No country accepts hire and fire, even the US or Japan," he said when asked if one could expect hard labour reforms after the assembly elections in April-May in five states.
He, however, admitted there were some rigidities in the Industrial Disputes Act and the labour ministry was addressing the issue.
But it needed a consensus. "We are working on it," he said, rubbishing the view that reforms have slowed down.
"Are you suggesting that the economy has been growing without any initiatives on our (UPA Government) part?" he asked.
He did not subscribe to the view that India was dragging its feet on some of the key issues in Comprehensive Economic Cooparation Agreement with Singapore like allowing their banks to expand its branch network in India.
"I don't agree (with that perception). It was clearly agreed that there privileges will be reciprocal. When the three Indian banks are given qualifying full bank status and rights in Singapore, on the same day RBI will fulfil the reciprocal obligations that India has undertaken, he said.