WASHINGTON, Nov 3: International Monetary Fund chief Dominique Strauss-Kahn on Friday cautioned India that curbing capital inflows too much could undermine confidence in the country, Asia’s booming, third-largest economy.
Strauss-Kahn, in his first news conference a day after starting his new post as IMF managing director, said it was important to enhance the transparency of the capital flowing into the country but limiting it may not always be good.
The problem of this kind of thing is it may undermine the confidence in the Indian economy, Strauss-Kahn, the former French finance minister, said. It will have an influence certainly on capital inflows but not always a good influence.
I think the Indian authorities should think over several times before implementing this kind of instrument, he said.
The Indian government has ratcheted up efforts to ensure that capital inflows don’t push the rupee out of control.
Meanwhile, the country’s stock market regulator last month tightened investment rules by clamping down on issuance of indirect investment notes, known as participatory notes, which are used by foreign investors not registered in India.
Strauss-Kahn said the rupee’s appreciation to record highs this week reflected strong economic fundamentals and a keen interest by foreigners to invest in the country. The appreciation of the rupee is driven by a lot of international capital flow to India, and that is the good news, he said, adding that companies increasingly want to establish offices in the country.
So an inevitable consequence of that, an unavoidable consequence of that, you have an important inflow of capital to India with a consequence on the rupee, he added.
The rupee jumped to a nine-and-a-half-year high on Thursday as investors bet on capital inflows into Indian markets after the US Federal Reserve trimmed interest rates, but suspected central bank intervention capped gains.
Even if it is not always easy to deal with an appreciation of your currency, as a European I can tell you, nevertheless it reflects good fundamentals, Strauss-Kahn said. You do not have to do anything which will in one way or another undermine this good luck.
