‘’17000 crores pumped by foreign
investors in Equities and Debt‘’
‘’Cabinet approves raising FDI
to 15% in Indian Stock Exchanges, a depository, a banking company, an insurance
company, a commodity derivative exchange’’
No to FDI before elections,
fervent pitches and a slew of measures to attract FDI after elections. Political
implications apart, are we in our greedy pursuit for foreign money putting the
economy in a currency crisis like situation??!
Carry trade: A lot of FII money that comes into India has often
been associated with P-notes while the rest has often been credited to the easy
money policies of countries, which seems to the case now with the Shinzo Abe government
of Japan planning to release a stimulus package of 265 Billion $ to stimulate
the economy & The Bank of Britain expected to do the same in the near
future. It is simple economics that a considerable part of investment would
find its way to the bright spot in the World – India. The situation of the
South East Asian currency crisis and where we are looks the same: Foreign investors
pumping money, asset classes getting over valued and Indian retail investor
participation increasing – Are we again headed to a situation where the
valuations will rise and then the FII (fly by night money, as in popular
nomenclature) money disappears causing a horrible crash! Scary are the eerie
realities!
Foreign Exchange reserves: Adding to the worry is the fact that we
have amassed one of the largest foreign exchange reserves in the world, chink
in the armor the composition which is roughly 70% of FII money or fly by night
money and the rest 30% FDI, thereby putting the delicate Current Account at a
further risk
The situation may look grim, but
the very prospect of not having 100% capital account convertibility could prove
to be a blessing and an insulation against these vagaries. However there has to
be a cautious approach to selectively open up rather than using it as a bandage
effort to try repair/rebuild the economy.
The question however remains, are
we as a country ready to embrace 100% capital account convertibility??? Read on
the next article to know more!
Till then...
Read, Ponder and
Forget!
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