New Delhi, Oct 9 (UNI) The government today said the capital inflows into the country is at three per cent of GDP but is able to absorb only 1.1 per cent of this into productive investment with the rest of the inflows going into the reserves of the Reserve Bank of India (RBI).
Buoyed by a positive climate, progressive liberalisation of the policy regime and simplification of procedure, forex reserves of India has been rising rapidly, Finance Secretary D Subba Rao told reporters and added it was becoming a challenge to find means to invest the foriegn capital influx.
''The question now is not on how you attract more foreign capital, but the challenge is how you make pruductive use of the foriegn capital that is already coming in,'' Mr Rao said.
India's foreign exchange reserves rose by a record 11.9 billion dollars during the week ended September 28 to top 248 billion dollars as foreign portfolio investors poured money into stocks in the second-fastest growing economy in the world.
Last week's inflows was reportedly one of the highest ever and had the effect of strengthening rupee, which has gained over 10 per cent against the dollar since April this year.
However, Mr Rao brushed aside any concern on the rising value of the rupee as he said the sustained heavy capital inflows was not a self defeating process to arrest the value of rupee ''but a challenge for RBI.'' We are trying to manage the challenge, he added.
Mr Rao said India can achieve nine per cent GDP growth rate as the 11th Plan document states with sustained growth in agriculture, expand employment opportunities, bridge infrastructure gap, improve public services delivery and manage globalisation and its effects.
He added that the government is on track to reduce fiscal deficit to three per cent and eliminate revenue deficit by the end of financial year 2008-09.
The FRBM Act mandates the central government to wipe out revenue deficit and bring down fiscal deficit to three per cent by 2008-09.
Mr Rao, however, said that reducing the fiscal deficit was important but improving the quality of public expenditure is a bigger challenge.