Finance Minister P. Chidambaram on Thursday said there were no reason to impose any restrictions on foreign investment even if there were some problems arising out of them.
"There are, of course, some problems associated with a copious flow of foreign investment, but that cannot become a ground to reject foreign investment," Chidambaram said at that annual session of the Confederation of Indian Industry (CII) here.
"We must learn to manage these inflows, but we must not do anything that will restrict investment-- domestic and foreign and both private and public," he added.
The finance minister’s remark assumes significance, particularly in the context of an appreciating rupee, rising inflation and some restrictions imposed on the external commercial borrowings (ECBs) undertaken by the booming real estate sector.
The finance ministry last week barred those setting up integrated townships from tapping foreign debt and made it difficult for small players to raise these borrowings by lowering the ceiling on interest rates to be paid on such loans.
According to figures released by Reserve Bank of India, about 812 companies have raised about $20.24 billion through ECBs between April 2006 and February 2007. Indian companies are finding it easier and cheaper to raise funds overseas, given the rising domestic interest rate regime.
Echoing views expressed by Prime Minister Manmohan Singh earlier in the day, Chidambaram asked industry not to resort to arbitrary pricing in the context of a rising inflation curve.
"Industry is working at near full capacity. Pricing power has returned to industry. We appeal to industry not to exercise pricing power arbitrarily," he said.
The Finance Minister identified the worldwide increase in commodity prices, supply-demand mismatch in essential articles, rising public expenditure and higher demand for goods and services the major causes for inflation.
"Wherever we can augment supply, we are augmenting supply, and wherever we can moderate demand, we are moderating demand. And that is the reason for increase in interest rates," he said.
Chidambaram said growth itself was not be blamed for inequitable distribution. “Growth in the last four years is not an accident. Rise in savings and investment is not an accident. If growth is not resulting in more inclusiveness, low growth will be even worse,” he said.
He also reiterated the Prime Minister’s opinion that it was necessary for firms and enterprises to pay adequate attention to employees’ welfare. “Respect for the worker does not cost much,” he said.