Washington: India has ruled out any plans to curb foreign capital flows, but clarified that its central bank reserves the right to intervene if foreign fund flows cause the economy to overheat.
“I do not consider that that situation (need to curb foreign fund flows) has arisen,” finance minister Pranab Mukherjee told reporters here when asked about a media report in this regard.
Foreign institutional investors have pumped in a record $21 billion (Rs 96,000 crore) so far this year and Reserve Bank of India deputy governor Subir Gokarn has said the central bank could intervene in forex markets if the capital surge leads to any disruptions.
“As far as the Foreign Institutional Investment and FDI to India are concerned, I do not consider that it is going to be too volatile in the present situation,” Mukherjee said.
“But definitely, it is the responsibility of the central bank of any country to watch the situation and as and when it is necessary to intervene appropriately.”
Gokarn had said that the Reserve Bank would look out for exchange rate fluctuations before intervening.
Delivering the inaugural Woodrow Wilson Center and Federation of Indian Chamber of Commerce and Industry (Ficci) annual lecture series, Mukherjee said India is exploring new ideas in financial regulation that protect the vulnerable but allow markets to flourish.
“There is a lot that can be learnt from the best practices in one part of the world to guide policy response in the other,” he said.
“If we do not regulate economic activity at all, we can have poor people getting trapped in debt and a repeat of the crisis of 2007. On the other hand, if we over regulate, we will kill innovation and harm economic growth.
“The solution to these dilemma is not easy. The US has tried to address some of these concerns with its new Dodd- Frank legislation,” he said.