New Delhi: Prime Minister’s economic advisory panel on Thursday said time for curbing capital inflows has not come since the country has the capacity to absorb $70 billion during the year without any problem.
The spurt in capital inflows, chairman of the Prime Minister’s Economic Advisory Council (PMEAC) C Rangarajan said would also help in easing the liquidity situation.
“I think the time for acting against capital flows has not come at the present moment, but we need to watch the capital inflows,” he told reporters on the sidelines of SKOCH conference in New Delhi.
Earlier, finance minister Pranab Mukherjee had also said that there are no plans to put curbs on capital inflows, even though RBI had said that it may intervene in the forex market if inflows were volatile and lumpy.
Pointing out that the current account deficit (CAD) was likely to be 3% of the Gross Domestic Product (GDP) this fiscal, Rangarajan said, “this will mean something like $45-50 billion... (India) can also accommodate comfortably upto $20 billion as additional reserves. Therefore, capital inflows into the country up to $70 billion should not pose any problem.”
Current account deficit is the gap between payment made by a country to rest of the world and what it receives, barring capital movements. CAD at 3$ of GDP implies $45-50 billion will go out of the country, and even if the country receives $70 billion, it will add to just $20 billion in foreign exchange.
Rangarajan’s comments assume significance since US central bank’s decision to buy 500 billion dollars may lead to further surge in capital inflows into India.
“The quantitative easing, the fed has announced has the direct implication for the US economy. It has been motivated by a need to provide additional stimulus that is why they have resorted to the quantitative easing. It may have implication in terms of capital flows,” Rangarajan said.
Yesterday in Seoul, planning commission deputy chairman Montek Singh Ahluwalia also said,“55 billion dollars inflow is ok. Another $20 billion dollars is also ok. If it goes upto $100 billion and if you ask me are you going to say the rupee should be appreciated, I will say no. The rupee will reflect volatility and temporary eruption.”