‘India doesn’t need capital controls on portfolio flows’

‘India doesn’t need capital controls on portfolio flows’

Seoul: There is no need for India to introduce capital controls on portfolio flows and foreign direct investment levels are not very volatile, a top Indian policy maker said on Wednesday.

Many fear a US Federal Reserve move to buy $600 billion more in government bonds by June 2011 will lead to a surge of “hot money" inflows to emerging markets such as India, South Korea and Brazil.

The debate could have negative repercussions for this week’s Group of 20 meeting in Seoul, and with many emerging countries willing to retaliate, a meaningful outcome to the currency and global imbalance debate now looks a little bleak.

Montek Singh Ahluwalia, deputy chairman of the Planning Commission, which charts India’s economic growth path, said he saw no need at the moment to alter policy in India to control capital flows.

“I personally do not think there is any need to alter the present policy for foreign direct investment because I think that’s not a very volatile thing, and if we get more of it within the realm of possibility then it’s excellent," Ahluwalia told Reuters.

“I also do not think at the present moment there is any need to introduce any capital controls on portfolio flows. We have capital controls on debt and I do not think we should relax those too readily. But yes those are things that you look at on a month by month basis."

Central banks in countries such as Japan and South Korea that are faced with a rising currency have indicated they may take measures to counter the appreciation pressure.

Indian Support For QE2?

India’s response has been measured in comparison with other economies such as China, South Korea and Brazil who have sharply criticised the latest round of quantitative easing by the United States.

India’s central bank, the Reserve Bank of India, has however maintained it will only intervene in foreign exchange markets if inflows turn “lumpy" or “volatile".

The Indian rupee has appreciated 5.1% in 2010.

Prime Minister Manmohan Singh this week offered qualified support for the Federal Reserve’s attempt at monetary stimulus, saying anything that stimulates the underlying growth impulses of entrepreneurship in the United States would help the cause of global prosperity.

Ahluwalia said India was running a current account deficit consciously in the belief that it would be able to finance it.

“We are consciously following a strategy in which we want to step up investment in a world in which Indian exports for a while will not do as well as they might otherwise," he said.