India's planners on Tuesday reiterated that there is no proposal to impose controls on the surge in short-term capital inflows, as these are helpful in bridging its rising current account deficit.
Large capital flows into India are not a matter of concern, according to a mid-year review of the economy tabled by finance minister Pranab Mukherjee in Parliament (See: Indian economy seen growing at near 9 per cent in 2010-11)
''To me the capital flow situation is not alarming because we are using it very well. There are countries that have imposed capital flow controls. I do not see any such need right now. The economy has been able to take it well,'' Kaushik Basu, chief economic adviser to the finance ministry, told reporters later.
Because of weak economic recovery in developed countries such as America and Europe hit hard by economic recession, overseas are chasing emerging markets like India for better returns, triggering demand in these countries to rein in hot money inflows.
''With current account deficit at ... 2.9 per cent of the gross domestic product (GDP) in fiscal 2009-10 and capital flows at 4.1 per cent of the GDP, the excessive inflows have largely been balancing the high deficit and have therefore not been a matter of concern,'' says the mid-year analysis.
The country's imports remain high because of strong domestic demand. However, high import demand has not been matched by growth in exports, leaving a rising trade deficit. Trade deficit has in turn fed into current account imbalance. For example, the country's trade deficit during April-October 2010 stood at $72.7 billion, compared to $58.3 billion for the corresponding period past fiscal.