The Finance Minister, Mr Pranab Mukherjee, does not see any marked negative impact on foreign institutional investor (FII) inflows from the ongoing sovereign debt troubles in the US and the Euro Zone.

There may be some “temporary outflows,” but “as India's growth story is intact and its fundamentals are strong,” FIIs will continue to view the country as an “attractive investment destination”. In fact, “we could rather see faster and greater FII inflows unlike after 2008 in view of the higher returns that global investors could get in India,” Mr Mukherjee claimed, while speaking to presspersons outside Parliament on Monday.

The Finance Minister's statement in the afternoon calmed the nerves of the market and helped the Sensex recover more than 250 points from the day's low of 16,759.45, before ending at 16,990.18 or 315 points lower than the Friday close. In all, the FIIs were net sellers of equity (in the cash market) to the tune of $360 million (about Rs 1,600 crore) on Monday.

Mr Mukherjee also pointed to the benign effect of the current global downturn on global commodity prices. “Softening of the international commodity prices, especially fuel oil, will help check inflationary pressures in the economy. It will also help in maintaining the fiscal balance for 2011-12,”he added.

‘Panic reaction'

The Chief Economic Advisor to the Finance Ministry, Dr Kaushik Basu, termed the slump in stock prices, especially during the opening trades, as a “panic reaction”.

While admitting that a slowdown in the US economy could hit Indian exports, Dr Basu held that this impact would be of a short-run nature. “In the next months and in the medium-to-long run, there will be global capital in search of safe haven. We (India) can become the safe haven that a lot of global capital will be seeking,”he said, adding that the “tectonic plates” of the global economy are already shifting eastwards towards India and China.

>krsrivats@thehindu.co.in

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