India Has No Plans To Curb Capital Outflows.

India has no plans to tax or curb capital outflows, a top finance ministry adviser said on Monday, adding the economy could still grow at around 8 percent in the current fiscal year to end-March despite increased global economic uncertainty. Foreign institutional investors (FIIs) have sold more than $2.2 billion worth of Indian shares since August, as fears of a recession in the developed world lowered risk appetite.

The main 30-share benchmark BSE index is down nearly 22 percent so far this year. The partially convertible rupee , which hit a 28-month low last Friday at 49.90 per dollar, has lost over 11 percent from its 2011 high hit in late July and remains the worst performer among major Asian peers. "I do not think we have anything to suggest to us any such thing," Dipak Dasgupta, principal economic adviser to the ministry of finance, told Reuters when asked whether India would consider imposing curbs on capital outflows. "Instead of trying to restrict the outflow, it is quite the opposite. In fact, what we are trying to do, as you have seen in the ECB (external commercial borrowing) regulation changes, is actually to make it a little more comfortable yet prudent to get inflows of capital to come to India." India relaxed its overseas borrowing rules on Sept. 15, raising the borrowing limit for companies and allowing firms to raise Chinese yuan-denominated debt in an attempt to woo capital inflows amid heightened global uncertainty.

FALLING RUPEE Many analysts have called for the RBI to intervene in the forex market to prevent the recent sharp slide in the rupee from fuelling imported inflation, which could further stoke domestic price pressures. "What drives the dollar's valuation is so far bigger.

Whatever we may try to do, absolutely you cannot affect it," Dasgupta said. Last week, a deputy governor of the central bank said the Reserve Bank of India (RBI) would maintain its stance of intervening in the foreign exchange market only to reduce volatility. The RBI had refrained from intervening in the foreign exchange market for eight consecutive months until July, latest central bank data showed earlier this month. Analysts have warned the central bank should not utilise its limited forex reserves of around $316 billion to protect the economy from imported inflation. "Our trade gap has widened considerably.

Our dependence on short-term loans has increased considerably. So even if the RBI intervenes, the rupee may not recover substantially," said Rupa Rege Nitsure, chief economist at Bank of India. "Companies have to factor in strong downward bias in rupee and accordingly hedge their positions," she added. DOMESTIC DEMAND TAILWIND Dasgupta said that while a global economic slowdown would have a knock-on effect on the Indian economy, strong domestic demand -- strengthened after normal monsoon rains -- could help Asia's third-largest economy log around 8 percent growth in the current fiscal year to end-March 2012.

"We are headed towards plus 8 percent growth in this fiscal and it is far too early to change that assumption," said Dasgupta, adding any decline in global crude and commodity prices would benefit the economy.

"We will probably recover in the last two quarters of this fiscal year." India meets over 75 percent of its oil demand through imports. Brent futures for November fell on Monday to $2.31 to a low of $101.66 a barrel. Brent is down 9 percent so far in September. Indian economic growth could fall by around 0.4 percentage points in this fiscal year from earlier estimates of around 8.5 percent, if the OECD (Organisation for Economic Co-operation and Development) region slows by 2 percentage points, he said. Dasgupta said he expects headline inflation to moderate in coming months, easing to 8 percent in December, and then slide further to 5-7 percent by March.

The RBI has raised interest rates 12 times in 18 months but inflation, which in August accelerated to 9.78 percent, remains at more than twice its comfort level. That puts the central bank in the awkward position of fighting high prices amid mounting worries about the health of the global economy. "Part of that (easing inflation) is the base effect, but it is not just the base effect. It is also due to good rainfall," Dasgupta said. (Editing by Malini Menon and Catherine Evans)

Source : ibnlive.in.com