FM hints at hot money curbs

Moderates 2008-09 growth projections to 8.5%; rules out Indian sovereign wealth fund.

Union Finance Minister P Chidambaram said India is compelled to "moderate" excessive flows of speculative capital due to aggressive interest rate cuts by the US Federal Authority that sharply widened interest rate differentials.

He, however, ruled out capital controls at this juncture or in future by suggesting that India always welcomed foreign direct investment as well as savings from non-resident Indians.

The Reserve Bank will adopt "moderating" measures to ensure that excessive speculative flows did not aggravate inflationary pressures in the economy, he said. The statement is significant just ahead of the central bank's review of its monetary policy due January 29.

The finance minister also told reporters during a press conference at the World Economic Forum that India is expected to achieve 8.5 per cent economic growth in 2008-09, a scale-back from earlier forecasts of 9 per cent. The lower forecast is a result of "the turbulence and current volatility in the international market which could dampen growth".

"The sub-prime mortgage crisis and the current turbulence in the international financial market are factored in the 8.5 per cent growth (projection) for next year," he said.

Expressing concern over "poor regulation" that led to the sub-prime mortgage (or high-risk housing loan) crisis, that now "spread to the insurance and perhaps, credit markets", he said "India did not suffer from first-order effects".

However, it is difficult to say whether India will suffer from the "second-order effects" in the coming months, he said.

The finance minister also ruled out India launching sovereign wealth fund like other Asia and West Asian countries because of its continued "fiscal deficit".

"India wants greater transparency in the operations of sovereign funds and the government is currently examining this issue," he added.