FII Flood In India
Posted by
Vijayalekshmi Omana at Sunday, December 6, 2009
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The IMF Managing Director Dominique Strauss-Kahn expressed his viewpoint of huge capital flows and warned it could be destructive as it may destabilise the currencies and asset prices. In the light of his outlook an overview of present Indian policy is handy.
Foreign Institutional Investors is the expanded form of FII. But as the caption says, the FII is flooding India. Now in the background of discussions about global warming no one must forget to see this flooding.
Dominique Strauss-Kahn's outlook may not be considered lightly. He rightly pointed out that the revival after the financial crisis may be a good sign generally, but its negative side of destabilising economy must not be unseen.
Liberalisation, globalisation, privatisation, development in communication standards, technology, etc have boosted the foreign capital flows. Any country especially in the midst of revival from the financial crisis would love such inflows into their economies. But care should be taken so that it may not overflow.
Foreign investment inflow hiked in comparison to previous fiscal year. Now the finance ministry formed a working group to recommend changes in its FII policy in order to attract more capital inflows. Two methods will also be studied viz the portfolio investments and the participatory notes. First one is a course by which foreign entities invest and buy shares or bonds without enjoying control of the entities they invested. Unregistered entities will be permitted to invest in domestic markets through the second method. India at present wants increase in the foreign funds rather that to curb the huge inflow.
Planning Commission Deputy Chairman Montek Singh Ahluwalia stated that the productive use of the capital will prevent it from overflow and destabilisation. His statement is backed with the policy of India to invest huge amount in infrastructure in the near future and these foreign funds will be added boost.
Planning Commission Deputy Chairman Montek Singh Ahluwalia stated that the productive use of the capital will prevent it from overflow and destabilisation. His statement is backed with the policy of India to invest huge amount in infrastructure in the near future and these foreign funds will be added boost.
End Note
Let us hope that India will act in time and use the capital in proper way for development and preserves the friendly relations with the foreign investors and also keep a cautious eye. If the capital inflow is tending to destabilise economy in anyway timely changes in its policies might be helpful such as taxation, appreciation in exchange rates etc. Hope the committee will also look after these prospective issues. Let the flood be diverted to channels in order to cool the global heat.
