Huge capital inflows may trip growth: Mid-Year Review

Huge capital inflows may trip growth: Mid-Year Review

New Delhi: The government on 7 December warned that increased capital inflows could endanger the growth process, although the economy is buoyant in tune with the trend witnessed since the last four years.

“There are short term challenges of managing inflows without endangering the growth and price stability," said the Mid-Year Review 2007-08, which was tabled by Finance Minister P. Chidambaram in Parliament.

The strong growth prospects of the Indian economy, which registered a growth rate of 9.4% in 2006-07, have been manifest in high corporate profitability, rising investment rates, higher GDP growth and rising capital inflows, it said.

However, the growth in agriculture and absorption of labour in productive areas would need “focused attention", it said emphasising that “growth needs to become even more inclusive".

Impetus of growth would continue to be provided by industry and services, which grew by 9.8% and 10.4% respectively to push up the economy by 9.1% during the first six months of current fiscal.

The review said increased inflows have been witnessed especially in the first half of current financial year, while the economy’s capacity to absorb it has not risen at the same pace, as indicated by the level of current account deficit.

“Increased capital inflows can impact macro-economic aggregates through the exchange rate, trade and monetary variables," the review said.

It said the economy has been witnessing a robust growth for four years in a row now and the buoyant growth in the first half of the current financial year reaffirms continuation of this momentum.