Thursday November 19, 2009

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By Sam Devraj  ( Assistant Editor )

Influx of funds: Inflows from abroad have been instrumental in driving up stock and property prices

 THE GOVERNMENT is not planning to cap overseas borrowing by Indian companies to stem rising foreign capital inflows but will monitor the flows closely, the finance secretary said in New Delhi today.  The Economic Times had reported today, citing an anonymous finance ministry official, that the government was planning to auction quotas for foreign borrowings by Indian companies, which would raise the cost of raising funds. “There is no such proposal,” Ashok Chawla said when asked if any quotas were planned on external commercial borrowing (ECB). With Western economies still crawling out of recession and interest rates at or near historic lows, funds have been flooding into faster-growing emerging markets, prompting some, including Brazil and Taiwan, to impose controls. Inflows from abroad have been instrumental in driving up stock and property prices and prompting some Asian central banks, including the Reserve Bank of India (RBI), to adopt measures to curb a surge in real estate prices.

“As of now it is not a cause of concern. As the situation evolves we will see what needs to be done,” Chawla said when asked if the government plans to tax capital inflows. Foreign investors have bought more than $15bn (£9bn) of local equities in 2009, after selling $13bn (£7.8bn) in 2008, helping send Indian stocks more than 75 per cent higher. The influx of foreign funds is also pushing up the rupee. Finance minister Pranab Mukherjee yesterday said India would have the tools to deal with an influx of foreign capital inflows if they become disruptive, but they are not a concern yet. 

 

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