No need to press panic button on high capital inflows,says FM

Foreign funds have pumped in a whopping $ 4.78 billion in the capital market in November taking the total to $ 38.5 billion in the 11 months of 2010. While FDI during the January-October period stood at $ 17.37 billion,down 27 per cent from $23.8 billion compared to the corresponding period last year.

Experts say,that since FIIs are highly volatile and FDI more stable and long term,a country should have more of the latter and less of the former. Also,due to high FII inflows,the currency appreciates,hitting exporters and becomes a cause for concern.

Elaborating on the challenges faced by the country,the finance minister said there has been significant increase in FII inflows even as there has been some moderation in FDI flows. But,“So far,foreign capital flows are well within the absorptive capacity of our economy and exchange rate and monetary management have not been unduly challenged. This can change at short notice. We have to be alert.”

Mukherjee said synchronised fiscal and monetary policy by the government and RBI will help the economy recover and achieve higher growth trajectory. He added that the RBI’s actions to inject liquidity in the economy while refraining from hiking policy rates,shows that the central bank is fully aware of the inflationary pressures but is also mindful of the requirements for higher growth.

On the price front,he expressed concern over the rising prices of international crude oil and other commodities. He said reining in rising prices is a must for the coveted double-digit growth.

“Oil marketing companies have had to hike the petroleum product prices earlier this month. There are also domestic supply side pressures on food prices that we have been grappling with for the past several months,” he said.

However,“It (double-digit growth) must be on a sustainable basis,and for that we shall have to ensure that the challenges that we are facing today — one on the price front,another on fiscal consolidation and also on certain developments which are taking place (internationally) are met,” he added.

Currently,the government is facing the wrath of opposition and common people over rising prices of vegetables especially that of onion,tomatoes and garlic. As a result of high onion prices,food inflation entered the double-digit zone at 12.13 per cent for the week ended December 11.