Euro crisis may trigger more capital flows into India: RBI

Euro crisis may trigger more capital flows into India: RBI
PTI
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First Published: Sat, Jun 12 2010. 03 21 PM IST
Updated: Sat, Jun 12 2010. 03 21 PM IST
Mumbai: The country is likely to witness more inward capital flows as investors may find the Indian market an attractive destination, especially in the backdrop of uncertain global markets, a top Reserve Bank of India (RBI) official said on Saturday.
“Money probably tries to come to places where it gets better returns. So from the point of view of capital flows, you do have the likelihood of more uncertainty in the rest of the world and therefore more money coming to India,” RBI deputy governor, Usha Thorat told reporters here.
Foreign Institutional Investors have so far invested around $5 billion in the domestic share market as against a total investment of $17.45 billion in 2009.
Policymakers, worldwide, are watching the developments associated with the Euro Zone crisis, which broke out after Greece nearly defaulted on public debts and some of its neighbouring economies face similar issues.
To avert the crisis deepening, Euro zone countries and International Monetary Fund formed a $1 trillion rescue package to bail out Greece.
The RBI, on its way of unwinding the monetary stimulus, is in a dilemma of hiking the policy rates next month to facilitate the exit while the recovery is still nascent.
Noting that India is getting increasingly integrated
to the global economy, Thorat said this makes the nation less immune to the developments happening abroad although “there is immediate negative impact on India (because of the crisis).”
Thorat said the growth in developing countries like India and China has been good, backed by recovery in industry and services sectors although the country’s agriculture output is yet to pick up.
Replying to a query, Thorat added that Indian banks have a healthy asset quality and “there is nothing to worry.”
Many banks, including the country’s largest, State Bank, had witnessed a rise in their bad loan levels after the financial downturn impacted the ability of customers to repay loans.
The RBI, which is slated to announce its quarterly review of the annual monetary policy on 27 July, is widely expected to hike its short-term lending and borrowing rates (repo and reverse repo) by 0.25% but to leave the mandatory cash reserve ratio untouched as cash conditions are tight.
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First Published: Sat, Jun 12 2010. 03 21 PM IST