New Delhi: India needs huge capital inflows to grow its economy at a faster rate but officials are facing problems managing them, finance minister Palaniappan Chidambaram said on Tuesday at a global business conference.
“Today in India, we have a problem of enormous capital inflows. This is a completely new situation for us,” Chidambaram said at the Fortune Global Forum organized by Fortune magazine.
“We welcome capital but we must learn how to manage capital, absorb capital. We need to put in place appropriate regulations. We need to put in place appropriate risk management systems.”
He added that India’s investment to gross domestic product ratio would rise to 40% in the next four to five years from the present 35%.
The country’s economy has grown by an average of 8.6% over the last four years and the government wants to lift annual expansion to double digits, but officials are finding it difficult to manage large capital inflows while keeping inflation in check.
Foreign funds have pumped around $17 billion (about Rs66,980 crore) so far this year into the Indian stock market, sending the main index soaring to a series of life highs and pushing the rupee up to nine-year peaks.
The stock market regulator recently announced measures to curb the issuance of participatory notes, which give unregistered foreign investors access to India’s markets.
Earlier, the central bank had ruled that money raised overseas by local companies in excess of $20 million must be spent overseas.
Indian shares have risen almost 43% since their weakest close during the subprime crisis in August, while the rupee has appreciated more than 12% against the dollar so far this year.
Referring to the US subprime crisis, Chidambaram said: “I came to the conclusion that perhaps one of the reasons why the subprime mortgage crisis hit the US economy was because regulations fell behind innovation.”
“We don’t want (our) regulations to fall behind innovations.”
Himangshu Watts contributed to this story.