Spam Prats Dec 04, 2009 No Comments
Net capital inflows into India during the current fiscal will be about $50 billion, Dr C. Rangarajan, Chairman of the Prime Minister’s Economic Advisory Council (PMEAC), has said. Capital flows cover portfolio inflows from foreign institutional investors (FIIs), foreign direct investments and external commercial borrowing (ECBs).
The Council had earlier estimated net capital inflows of $55 billion. In 2008-09, there was a net capital outflow from the economy.
“Capital flows have started picking up. Perhaps, in the second half, one would see a larger pick-up. So far the gross inflows have been $44 billion, but we have to account for ECB repayments and outward FDI also. The total net capital inflows could be $50 billion this year,” Dr Rangarajan told reporters on the sidelines of an OECD-India symposium co-hosted by the Organisation for Economic Cooperation and Development and ICRIER here today.
In his address to the symposium, Dr Rangarajan said that this increased level of capital flow was manageable and would not pose problems for the monetary authorities.
However, in her presentation, Ms Usha Thorat, Deputy Governor of the Reserve Bank of India, said that managing the capital flow is going to be a challenge in the coming days.
Noting that FII inflows have been the volatile element, Ms Thorat said that in the current year so far (up to November 20) $19 billion had come in FII through this route. In 2008-09, the net FII outflow was about $15 billion. Inward FDI so far this fiscal stood at $17.7 billion. It was $35 billion last fiscal, she said.
“Managing capital flows is an important issue as large capital flows and asset prices could feed on each other and this could be destabilising,” Ms Thorat said.
7 PER CENT GROWTH
Dr Rangarajan said that the economy will grow by about 7 per cent in the current fiscal. For 2010-11, the Council’s forecast is 7-8 per cent. India will return to 9 per cent GDP growth levels in 2011-12 only if the world economy and world trade improve.
For the current fiscal, Dr Rangarajan said that the current account deficit will be about 2 per cent of GDP, that is, about $25 billion. This current account deficit will be easily financed by the net capital inflows.
“After allowing current account deficit of $25 billion, we had estimated accumulation of $30 billion reserves. Looking at what has happened to the accumulation of reserves in the first nine months, it appears that our estimate was more or less correct. It could be somewhat less than $30 billion. This is manageable level of capital flows. This can be managed,” Dr Rangarajan said.