Keep the gates open

Keep the gates open

One big question that is buzzing around the air these days is whether India will impose capital controls. The torrents of liquidity gushing in is making life tough for the authorities, who may well be tempted to slam the door shut.

So, it is pleasing to note that the cabinet will, in its meeting on Thursday, review some of the limits on foreign direct investment (FDI) in select sectors. It is not yet clear where the limits will be raised, or whether they will be raised at all.

There is no doubt that huge capital inflows are a short-term problem, all the more so when the dollars end up in equities and real estate. But long-term capital in the form of FDI is still needed in India.

Our fear is that the cabinet will open the door a bit in sectors such as refining and commodity exchanges. The bigger issue of more FDI in banks, insurance companies and retail chains will most likely be ignored.