No plan to check FII inflows as of now: Govt

The Government has no plans to put a keep lid on overseas capital inflows but will monitor the trend closely, Finance Secretary Ashok Chawla said on Thursday. He told reporters in New Delhi that rising capital inflows is not a matter of concern as of now. He also denied that the Government is planning to cap overseas borrowings by local companies in a bid to check relentless foreign capital inflows. A business daily had reported earlier that the Centre was planning to auction quotas for external commercial borrowings (ECB) by Indian companies, which would increase the cost of raising such funds. "There is no such proposal," Chawla said.

With interest rates in matured economies near zero and no signs of central banks in these nations being in a hurry to withdraw the unprecedented stimulus measures, money has been flooding risky assets like emerging market equities, commodities and gold. India too has seen strong foreign inflows into its stock market this year with a steady improvement in its economy and corporate earnings. In order to prevent a repeat of 2007 when unbridled FII inflows made monetary management really tough for the Reserve Bank of India (RBI). Some countries, including Brazil and Taiwan, have already imposed certain controls, and some Asian central banks, including the RBI have adopted 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 is contemplating any move to curb the strong foreign inflows. FIIs have pumped in more than US$15bn into Indian stocks in 2009, after pulling out US$13bn in 2008, helping send the benchmark indices up more than 75%. The influx of foreign funds has also lifted up the rupee against the US dollar. On Nov. 18, Finance Minister Pranab Mukherjee said that the Centre has the wherewithal to deal with any possible surge in foreign capital inflows, but added that they are not a major cause for concern just yet.

The Government is not considering imposing a tax to curb capital inflows, and wants the inflows to rise a little more, deputy chairman of the planning commission Montek Singh Ahluwalia was quoted as saying. "Capital flows are rising but we want it to rise a little bit more," Ahluwalia said. Asked if there was a possibility of India imposing a tax to curb capital inflows, he said, "I don't, certainly not". He said that foreign fund inflows we