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Business News/ Opinion / Online-views/  Needed capital flows
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Needed capital flows

Needed capital flows

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What a difference a year can make! India was awash with liquidity 12 months ago, thanks to the flood of foreign capital that was pushing up asset prices and the exchange rate. The big challenge was to keep some of that capital out. That was why restrictions imposed by the Securities and Exchange Board of India (Sebi) on the issue of participatory notes (PN) in October 2007 were timely. We had welcomed the restrictions at the time.

Similarly, we cautiously welcome Sebi’s decision on Monday to ease some of those same restrictions. The economic realities have changed dramatically since then. Foreign investors have rushed for the exits. Indian companies are finding it tough to borrow abroad. The stock market is at a two-year low. The rupee has tumbled against the dollar this year.

India needs more foreign capital to finance a current account deficit that is at its highest since the 1991 crisis. The PN easing could help, though perhaps not at once. Other shots have been fired. Banks can pay higher rates on non-resident Indian deposits. There is talk of fewer restrictions on corporate borrowing abroad. One fear: we shouldn’t attract hot money that may destabilize the economy later.

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Published: 07 Oct 2008, 12:48 AM IST
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