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Capital inflows a challenge: Chidambaram

business Updated: Nov 12, 2007 23:08 IST
Gaurav Choudhury
Gaurav Choudhury
Hindustan Times
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Effective management of capital inflows, infrastructure capital requirements, social equity and raising agriculture growth rate were among the key challenges confronting the Indian economy, Finance Minister P Chidambaram said in New Delhi on Monday.

“The short-term challenges on the external front are posed by the need to effectively manage an unprecedented influx of capital inflows and burgeoning foreign exchange reserves and to contain the adverse effects of appreciation of the rupee on Indian exports,” Chidambaram said at the annual economic editors conference here.

Chidambaram, however, said that the government was not contemplating any further measures to moderate capital inflow but was monitoring the situation constantly. “One did not expect instant result from the Securities Exchange Board of India’s (SEBI’s) move to moderate capital inflows. I think inflows will moderate in the medium to long term,” he said.

These inflows, he said, were a test of the absorptive capacity of the economy. “The economy must also be insulated to the extent possible from the potentially adverse effects of the economic slowdown occurring in some of its major trading partners,” he said.

In 2006-07, net capital inflows almost doubled from the level of the previous year to $ 46.2 billion. External commercial borrowings (ECBs) alone accounted for about 35 per cent of total capital flows, enabled by ample liquidity and favourable interest rates in the global markets.

He said that investment requirements for infrastructure were “humungous”.

“We must find ways and means to mobilise these resources and complete the infrastructure projects without cost or time overruns,” he said.

Chidambram said the slow-growing farm sector was another cause for concern. “Issues like stagnant yield rates in many important crops, declining per capita availability of food grains and need for additional public investment call for urgent policy attention.