The Hindu Business Line : “Ease ECB norms to arrest decline in capital inflows”

NEW DELHI: Projecting 34 per cent decline in foreign capital inflows due to uncertain external environment, the PM's Economic Advisory Council (PMEAC) on Wednesday made a strong case for easing the External Commercial Borrowing (ECB) guidelines to help c orporates borrow funds from overseas debt market.

The total capital inflows during 2008-09 are expected to decline to $70.9 billion from $108.03 billion in the previous year mainly due to likely decline in portfolio and private equity investment, said the Economic Outlook for 2008 -09 prepared by the PMEAC.

“Since we are not expecting larger capital inflows, the Government could relax the restrictions imposed on ECBs in the past,” said the outgoing Chairman of the PMEAC, Dr C Rangarajan.

Pointing out that the net addition to the foreign exchange reserves is likely to be $30 billion, about one-third the level of last year, the PMEAC said, the policy makers would “face a situation of greater volatility in capital inflows on account of unce rtain external environment.”

As per the PMEAC projections, the private equity inflow during the current year is likely to fall to $7.5 billion from about $10 billion in 2007-08. As regards the Foreign Institutional Investors (FII) inflows, the PMEAC said: “There may be some resumpt ion of inflows in the second half of this fiscal... the net FII accrual at the end of the year would be of the nominal order of $1.3 billion.”

India received net FII inflows of $20.3 billion in 2007-08. The PMEAC is also expecting substantial fall in aggregate portfolio investment which also include ADR/GDR issuance by Indian corporates.

The net Foreign Direct Investment inflows, however, are likely to rise by 27 per cent to $19.7 billion, the PMEAC said. - PTI

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