‘End use to be under the Reserve Bank of India scanner’.
Hinting at increased vigil on foreign capital inflows, Reserve Bank of India Deputy Governor Subir Gokarn on Thursday said investments were expected to gather momentum in the coming days and the central bank would scrutinise flow of debt funds into the market.
“India is becoming an investment destination. There is lot of liquidity in the global system after governments and central banks pumped in money to fight the financial meltdown,” Gokarn told reporters on the sidelines of a seminar on low carbon economy.
RBI will have to evaluate its approach if inflows into the debt market increase. It will also have to look at the end use of funds and the cost of funds flowing into the country’s markets.
“Debt is the least preferred (but not rejected) since it’s a committed payment. That explains why there are more restrictions on debt flows compared with others,” he said.
RBI has maintained that among the different components of capital flows, it prefers long-term flows to short-term flows and non-debt flows to debt flows.
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RBI’s policy on equity flows has been quite liberal. Also, in sharp contrast to other emerging market economies which liberalised fund flows and then reversed the process when the markets became volatile, our policy had been quite stable, he said.
On the euro rescue package and the Greek debt crisis, he said it was too early to say how the event would pan out.The crisis reflects the continuing uncertain environment, which is a factor that RBI has already built into its exit strategy (coming out of monetary expansion).
The RBI deputy governor indicated there was no reason to change its approach in view of the Greek crisis. “It (the Greek crisis) is not showing signs of spilling over to a larger real economy problem. RBI will keep a watch on developments,” he said.