The Hindu Business Line : We cannot afford shocks, says Chidambaram

New Delhi, Oct. 30 The Finance Minister, Mr P. Chidambaram, on Tuesday said the country needs to put in place appropriate regulations and risk management systems to manage the surging capital inflows even as he welcomed such flows into the economy.

Stating that vast amount of capital was needed to build a new India, Mr Chidambaram told the Fortune Global Forum 2007 that the country would gain from globalisation and was also determined to be part of the global world.

“Your savings, ideas and businesses, products and management systems are most welcome to India and we will attune our regulations as we go along,” he told a gathering of chief executives of international companies.

The Finance Minister, however, highlighted that there were limits to globalisation and a developing country like India would prefer to have regulations one step ahead of innovation.

“Regulation and de-risking the system must always be one step ahead of innovation and human inventiveness. We recognise the importance of innovation and human inventiveness. But it’s important for a developing country to avoid shocks. We cannot afford shocks. To avoid shocks, regulation must be one step ahead of innovation. We are learning,” Mr Chidambaram said.

Citing the sub-prime mortgage crisis that hit the US economy, the Finance Minister said one of the reasons for such a crisis was that regulation fell behind innovation.

Mr Chidambaram said the investment to GDP ratio could touch 40 per cent over the next four to five years, from the current level of 35 per cent, on the back of growing incomes and more efficient intermediaries.

“We, therefore, invite global financial institutions. We also want Indian financial institutions to become global so that savings can be intermediated more efficiently and the cost of financing India’s development would grow sharply and spur the rate of investment,” he added.

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