That's not possible. That would amount to the applet setting its own security policy - not something that's allowed. The alternative is to sign the applet; see HowCanAnAppletReadFilesOnTheLocalFileSystem for details.
Thank you so much for the reply. I have already gone through the link you have provided but it hardly helped. I am new to signing applets and so could not decipher many of the things. As far as the inclusion of policy file in the jar file is concerned, can please clarify your point elaborately. I found a link :policy file in a jar which does throw light on it but not elaborately.