C. Rangarajan, chairman of the Economic Advisory Council of the prime minister, Friday said foreign capital inflows would come in once global economic prospects improve and the country’s growth starts picking up.
“The uncertain world economic situation, especially in Europe, has created a situation of risk aversion. That is some concern about investment in general. And therefore it has affected to some extent the overall capital inflow of the developing economies,” Rangarajan said during an event organised by the Indian Statistical Institute(ISI) here.
“That is the factor which is outside the control of India and unless the global economic prospects improve and the risk aversion comes down, perhaps we cannot expect the capital flow of as large as we used to,” he said.
Rangarajan said India’s slow growth rate, high rate of inflation and high fiscal deficit had also led to low foreign investment in the country this fiscal.
“There are country specific issues also. When FIIs are investing in India, they have the opportunity to invest in other countries as well. And therefore they will take a look at the return available in India and also the returns available elsewhere,” he observed.
Rangarajan said the sentiment could be reversed when the economy would show high growth rate this year.
“If we show that the growth rate started picking up, that will itself act as the stimulus for the capital flow in the country.”
He said the government needed to reassure the FIIs in the face of “some misconception” about the retrospective amendments to the Income Tax Act.
“If there are some misconceptions about the some changes that we have made, we need to remove them not necessarily through statutory changes, but reassuring them that the changes that we have introduced are not intended against anybody’s interest.”