New Delhi, Feb 8 (UNI) PHD Chamber has advocated fine-tuning of policy to modulate inflow of Foreign Institutional Investors (FIIs) to insulate the Indian economy from extreme speculative swings and distortions.
The Chamber's call has come in the wake of a perception that high FIIs' inflows are causing rupee appreciation against major currencies, particularly the US dollar.
''We are not against FII inflow into the country ....but when there is a huge jump - 22 billion dollars during April-November 2007 as against 3.8 billion dollars in the corresponding period last year, we have to sit up and take stock of the situation,'' said Chamber president L K Malhotra.
The suggestion, he added, is not aimed at blocking FII inflows but to gauge its quality to discern how much has been channelised to productive sectors.
The Chamber said three pivotal segments of the industry-textiles, information technology and gems and jewellery -are reeling under heavy pressure on account of rupee appreciation since these industries' fortunes are directly linked to exports.
It held the view that soon the negative spin-offs of rupee appreciation would affect other segments as well. The common perception that hardening of rupee would lead to easing of cost of imports and help the domestic industry is an overstated fact in the long run, it added.
The Chamber called for a holistic view of the situation, saying weak dollar or Euro would lead to surge in imports of goods at reduced prices, which can erode the price competitiveness of the domestic industry.
Dr Malhotra said a steadily appreciating rupee, a higher interest rate regime and a plethora of infrastructure bottlenecks can square off the marginal benefits on imports on account of rupee appreciation and can erode the price competitiveness of the goods in the domestic market.
PHD Chamber felt that looming recession in the US, slowdown in the growth rates in the manufacturing sectors in Europe and measures being contemplated by these countries to curb the hedge funds' operation in the aftermath of sub-prime mortgage crisis in US would compel many FIIs to park their funds in India for a safe return.
This might lead to further firming up of rupee.
Advocating modulation of the FII inflows, the Chamber suggested a minimum lock-in period of one year and more imaginative policies to check the inflow through participatory note (PN) route.
Dr Malhotra said SEBI has thoroughly discussed these issues and hoped some positive decisions would be put in place as early as possible.
The Chamber said there is a worldwide consensus for modulating the capital flows. European countries are inclined towards imposing additional taxes on capital flows and compulsory registration of hedge funds.
''India also has to think in that direction, sooner or later,'' said Dr Malhotra.
UNI SAA BJR DS1412