FM prefers FDI, remittances over FII inflows

New Delhi, Jan 4 | Updated: Jan 5 2006, 05:30am hrs
Finance minister P Chidambaram on Wednesday said India welcomed all kinds of capital flows into the country but added there is a hierarchy of preferences.

Addressing Harvard students, he said that while all non-debt creating capital flows were welcome, he would rank remittances, FDI, FII and venture capital flows, in the order of preference. However, one should not try and stop some kinds of capital, he said.

The only caveat is investment flows should add to the stock of capital, facilitate greater investment and create more jobs.

This is the first time the finance minister has hinted that the government has some preference in the kind of capital flows into the country. In India, FII inflows have hugely outstripped FDI. While FII inflows topped $10 billion in 2005, FDI inflows have not even crossed $5 billion.

The Reserve Bank of India has long been of the view that there was a need to regulate FII inflows including scrutiny of the origin and source of investment funds flowing into the country. The regulator had, in fact, presented a dissent note to the Ashok Lahiri committee on FIIs, and said its report did not address the issue of volatility due to FII flows comprehensively. While the finance ministry was not in favour of banning participatory notes, RBI had all along been saying that issue of PNs should not be permitted.

Capital View
" The fears of foreign investors taking over India are misplaced. I accept two-way flow of capital as long as the net flow is inwards "
P Chidambaram

Finance Minister
Emphasising that the fears of foreign investors taking over India were misplaced, he said Indian telecom and manufacturing companies were today acquiring companies abroad. I accept two-way flow of capital as long as the net flow is inwards, Mr Chidambaram said. India is a capital deficit country, so the net flow must be capital, he added.

Drawing parallels with China, he said that the country attracts $45-50 billion a year as against Indias FDI inflows of $4-5 billion. China is no longer a Communist country. Its a one party state. They do not talk communism anymore. All they talk is profits, investment and competition, he said.

Drawing up a plan of action for India to achieve sustainable growth of 8%-plus over the next 15-20 years, he said, the focus would be on increasing investment, improving implementation and delivery systems.