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Wednesday, Oct 24, 2007
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India will not impose capital controls: Chidambaram

“No turbulence in financial markets”

Washington: Maintaining that there is no turbulence in the Indian financial markets, Finance Minister P. Chidambaram has said the government has no intention of imposing capital controls or keeping out any kind of funds.

“There is no turbulence. It was an instant reaction by fund managers that some kind of restrictions are being placed on investments by Foreign Institutional Investors,” he told PTI here.

“All we say is that instead of coming through a non-transparent route of participatory notes issued on the basis of overseas derivative instruments, please come in as FIIs and register in India,” Mr. Chidambaram said.

“Yesterday, capital market regulator SEBI said it cleared 16 FII applications for registration and announced that it would allow proprietary sub-accounts to register themselves. It increases transparency. It also subjects these investors to due diligence by Indian authorities. I think the clarifications have gone home now,” the Minister said, going on to reject the Left parties’ call to ban Participatory Notes (PNs).

“I don’t think the Left parties have quite understood the complexity of the issues. It is a very simplistic call -- ban participatory notes.”

The Minister reiterated that the Indian government would like the exchange rate to be competitive but said there was ‘no choice’ except continuing with the sops to exports in the face of an appreciating rupee.

“We don’t take a view on the exchange rate. However, we would like the exchange rate to be competitive without hurting investments. The one-way bet on rupee was causing some concern, but in the last two or three days that has changed. Rupee is moving both ways. Today (Monday) rupee closed at 39.89.”

He said, “If rupee continues to appreciate rapidly we have to extend some support to the exporters. There are other sections of the economy that will gain by the appreciating rupee, but exports will be hit and exports are important for us... Therefore, we have given them support and if necessary we will give them support.”

Would the recent decision to put on ‘hold’ the U.S-India civilian nuclear deal impact the financial markets?

Mr. Chidambaram said the decision would not have a direct impact on the financial markets of the country although there was bound to be some disappointment.

At a joint meeting of the World Bank and the International Monetary Fund here, Mr. Chidambaram asked the rich countries to take measures quickly to cool down volatile financial markets, while expressing an apprehension of uncertainty in 2008 with turbulence spreading from its epicentre in the U.S. to Europe.

“We urge the advanced economies to take appropriate measures to restore full normality in financial markets.”

He said downside risks increased with the spreading of turbulence in financial markets.

“The risks continue to unfold and the prospects for 2008 are somewhat uncertain.”

Referring to the spurt in global food and crude prices, he said global imbalances, supply-side inflationary pressures and protectionism continued to pose risks to growth.

Mr. Chidambaram’s plea found an echo in IMF Managing Director Rodrigo Rato’s warning that an “earthquake” in credit markets sparked by rising defaults in the U.S. mortgage market could tip the global economy into recession, ending a five-year boom. — PTI

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