The move, which would benefit many Indian multinationals, is being considered to operationalise the country's first International Financial Services Centre proposed to be set up in Mumbai.
"We are looking at a comprehensive package of measures which can be introduced in the next year's budget by amending existing provision in the Foreign Exchange Management Act and the Securities and Exchange Board of India regulations for the IFSC," a finance ministry official said.
Officials are of the opinion that full convertibility of the rupee is not a necessary pre-condition to set up the Mumbai centre, since several other countries, including the UK, set up such centres before making the pound full convertible. However, the Tarapore report will be looked at in detail the official added.
Elaborating on currency hedging, officials explained: "Indian companies often pay daily allowances to their Indian employees working abroad by converting
their dollar or pound earnings into rupees and depositing the money in their Indian bank accounts. These companies undertake a lot of currency hedging swap in order to cut their rupee conversion cost."
The list of regulatory measures needed to operationalise the financial services centre is being finalised by a committee headed by economist Percy Mistry.
The committee, which consists of the chairmen and managing directors of several public sector banks including the State Bank of India, UTI Bank and Bank of India is expected to submit its final report by December.
The official added that while there are no estimates of the size of the financial services market in India, several Indian companies with global operations such as Infosys have to incur a huge rupee conversion cost since currency hedging is not permitted in the country.
Similarly, while rupee-based medical insurance policies are easily available the premiums for purchasing a dollar or pound based medical insurance in India is very high.
"We could look at measures to increase the availability of such products in the country," an official said.
