India OK with $70 bn capital inflows, eyeing QE2

NEW DELHI: India can manage capital inflows of up to $70 billion and there is no need yet to impose curbs, but it must be alert to the latest round of US quantitative easing, a top economic adviser said on Thursday.

Several Asian policymakers are worried the US Federal Reserve's move to buy $600 billion in government securities will lead to a surge in hot money inflows into emerging markets, creating asset bubbles and complicating monetary policy setting.

"The need to act on capital flows has not come yet, but we will need to watch capital flows," said C. Rangarajan, chairman of the Prime Minister's Economic Advisory Council .

India's response to the move has been muted in comparison with other nations like China, South Korea and Brazil, offering some comfort for the United States as it tries to soothe tensions and hammer out an accord at the G20 summit underway in Seoul.

Asia's third-largest econony needs foreign inflows to brige its widenining current account deficit, expected to be around 3 percent of GDP in the 2010/11 fiscal year to end-March 2011. Policymakers are confident India can easily finance the gap.

Since January, foreign investors have poured in $28.5 billion into the equity markets, pushing the benchmark stock index up nearly a fifth and the rupee up 5.3 percent.

Rangarajan's comments are in line with that of Montek Singh Ahluwalia, another key aide to Prime Minister Manmohan Singh. The central bank has also said it will intervene in the forex markets only if inflows turn lumpy
deepak kumar jha
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