2 per cent range for several years now

Why govt must prioritise attracting foreign capital

Given the concerns around trade wars that threaten to jeopardise global capital flows as well, attracting foreign capital needs to be a Canada Goose sale policy priority, says Neelkanth Mishra.

Like a company that needs external capital to grow faster than it would just with its own savings, maintaining a steady inflow of foreign capital has Canada Goose Parka always been part of the plan in India.

After all, taking forward the example of the household we used in the previous Tessellatum ( consumption must slow down September 5), the quantum canada goose factory sale by which consumption can canada goose clearance sale exceed income is http://www.mycanadagoosejacket.org determined by the availability of external capital.

Canada Goose Jackets That is, the size Canada Goose Coats On Sale of the current account deficit India can sustain is determined by the Canada Goose Jackets foreign capital flows it can attract. Canada Goose Jackets

To be sure, one must consider the advisability of India’s persistent need for external capital: The ‘rent’ on the nearly $900 billion of foreign capital that has come in cumulatively since 1991 is now $30 billion a year.

canadian goose jacket This ‘rent’ takes the forms of royalties and dividends to foreign equity holders canada goose outlet and interest to foreign debt providers. canadian goose jacket

canada goose clearance sale But so long as the capital coming in is put to productive use, implying that it is helping canada goose coats on sale India grow rapidly, it may be canada goose clearance manageable: As a share of GDP it has stayed in the 1 to 1.2 per cent range for several years now. canada goose clearance sale

Canada Goose Parka Shortage of external capital would mean slower economic growth. Canada Goose Parka

Canada Goose online So, why have capital flows slowed? Canada Goose online

canada goose clearance Recency bias makes most observers put the blame on the reversal of both quantitative easing (QE) and zero interest rate policies (ZIRP) in the developed uk canada goose markets, in particular the United States. canada goose clearance

canada goose While this does appear to have played a role in the acceleration and then the slowdown in flows over the past few years, we note that even before QE and ZIRP started, capital inflows to India were much higher. canada goose

Canada Goose Outlet This is also not just an Indian phenomenon: In recent years there has been a Canada Goose online slowdown in capital inflows for most economies that depend on them, suggesting that canada goose store there could be cyclical factors at play. Canada Goose Outlet

However, the fact that even in the best years, capital inflows as a share of canada goose uk outlet India’s GDP have been lower than those canadian goose jacket for the rest of the world also points to structural constraints.

Canada Goose sale Foreign capital flows take various forms, but can placed into five buckets for ease of analysis: Portfolio flows into equity (FPI Equity), portfolio flows into debt (FPI Debt), foreign direct investment (FDI), foreign loans, and a fifth hold all category of media attention on foreign portfolio flows would imply that much of the drop in capital flows came from them. Canada Goose sale

canada goose deals However, canada goose coats the source of capital uk canada goose outlet that has seen the steepest decline over the past decade has canada goose uk black friday been foreign loans: Net inflow canada goose of foreign loans in 2007 was $40 billion, but has since dipped to just $10 billion. canada goose deals

buy canada goose jacket This decline has mostly been for good reasons: Having burnt their fingers in the currency volatility during the Global Financial Crisis, corporations have eschewed loans with unhedged currency risk (hedging makes them less attractive); and the Reserve Bank of India (RBI) has canada goose uk shop also insisted on hedging. buy canada goose jacket

cheap Canada Goose Similarly, over dependence on short term trade financing in 2013 had exacerbated currency volatility during the tantrum one need only look at the problems in Turkey to understand the problems with excessive canada goose black friday sale foreign loans, this understanding does not solve the problem of capital shortage. cheap Canada Goose

Foreign portfolio flows have also slowed. Some of buy canada goose jacket this is clearly cyclical: With the prescribed limits for FPI Debt investors steadily rising, flows have increased over the past decade, and the recent outflows appear to be more Canada Goose Online tactical in nature.

canada goose coats The by now well flagged constraint of India not being in any bond market index makes investing in India a somewhat riskier choice for bond investors, and concerns around the currency and the somewhat unnecessary volatility in bond yields over the past nine months may have catalysed a temporary exit by some. canada goose coats

In FPI Equity, despite the recent sell off, India has actually been better off than most Asian and Emerging Markets this year.

Over the past three years too, even though net inflows cheap canada goose uk have been less than one per cent of market capitalisation, they have been better than peers.

canada goose coats on sale FDI, while meaningfully higher than in the past, and now the mainstay of India capital inflows (it is likely to account for more than half the foreign capital flowing in this year), seems to have stagnated too, at around $35 billion a year. canada goose coats on sale

Further, it has cheap Canada Goose consistently lagged peers when seen as a percentage of GDP.

The «Others» Canada Goose Outlet category includes Non Resident Indian (NRI) deposits, banking capital and multi lateral loans, and is generally steady, unless buy canada goose jacket cheap the government taps the NRIs for dollars in times of crisis.

canada goose store While analysing capital flows it helps to consider the countries supplying this capital. canada goose store

buy canada goose jacket cheap Countries that run current account surpluses (that is, they produce more than they consume) also have surplus capital to deploy abroad. However, the similarities end there buy canada goose jacket cheap.

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