March 18 (Bloomberg) -- India's Prime Minister Manmohan Singh said his government will consider allowing the rupee to trade freely against other currencies, as part of a plan to boost overseas investments into the country.

At present, India allows its currency, the rupee, to be convertible only on the trade or current account. This allows companies and individuals to freely convert rupees into foreign currencies for trade in goods and services.

India is simplifying rules on foreign currency transaction to make it easier for Indian companies to buy assets abroad and foreign funds that invest in local shares. The effort has been underpinned by mounting foreign exchange reserves, which have risen to $144 billion, the fifth-largest in Asia, and economic growth that's made the nation's benchmark stock index Asia's second-best performer this year.

``Our own position, internally and externally, has become far more comfortable,'' Singh said today at the Asian Corporate Conference in Mumbai. ``I have requested the Finance Minister and the Reserve Bank to revisit the subject and come out with a road map on capital account convertibility.''

India's economy, Asia's fourth-biggest, is forecast by the government to expand 8.1 percent in the year ending this month, from 7.5 percent a year ago. India, the second-fastest growing major economy after China, expects to get $7 billion of foreign direct investment by March 31, almost twice from a year earlier. Overseas funds have bought $3.4 billion of stocks since Jan. 1. Purchases were a record $10.7 billion in 2005.

Savings Rate

``This is a clear signal that we are looking at a system which wants to draw in more investments and make acquisitions overseas even easier,'' said Nimesh N. Kampani, chairman of JM Morgan Stanley Pvt. ``Attracting investments is one benefit of the move, the other is integration with the outside world.''

India's economy can expand as much as 10 percent a year in the next few years, Singh said today. That would bring India's growth closer to the 9.5 percent pace China averaged over the past 2 1/2 decades and help lift a third of the country's 1.1 billion people out of poverty.

``We hope to raise the annual growth rate to between 9 and 10 percent. Our optimism is based on the fact that our savings rate is now over 29 percent of GDP and the investment rate is 31 percent of GDP,'' Singh said.

Still, India will need an investment of $1.5 trillion to sustain annual growth rate of 8 percent for five years, Singh said, referring to recommendations made by panel headed by Ratan Tata, chairman of the Tata Group, India's biggest business group by market value.

India has been cautious in its approach on capital account convertibility of the rupee following the East Asian economic crisis in 1997.

To contact the reporter on this story: Ashok Bhattacharjee in Mumbai at ashokb@bloomberg.net

Last Updated: March 18, 2006 11:55 EST