Govt says has tools to manage heavy inflows

RELATED NEWS Govt not worried about rise in capital inflows

India would have the tools ready to deal with an influx of foreign capital inflows if they become disruptive, Finance Minister Pranab Mukherjee told reporters on Wednesday.

With Western economies still crawling out of recession and interest rates at or near historic lows, funds have been flooding into faster-growing Asian markets.

Indian officials had said on recent occasions that they welcomed fund inflows, but Mukherjee on Wednesday also noted that India is ready to deal with the flows if they become a problem.

"It is not a matter of concern as we have the system of monitoring," he told reporters.

"And whenever we will find that there are some distortion, then we will have the arrangement to counteract it," he said on the sidelines of an event.

"Therefore, it would not be disturbing," Mukherjee added.

Higher capital inflows have been instrumental in driving up stock and property prices and prompting Asian central banks, including the Reserve Bank of India (RBI), to adopt measures to curb a surge in real estate prices.

Foreign investors have bought more than USD 15 billion of local equities in 2009, after selling USD13 billion in 2008, helping send Indian stocks over 75% higher.

The influx of foreign funds is also pushing up the rupee.

The RBI has said there was a risk that if it raised interest rates ahead of other central banks, it could attract more inflows and complicate policymaking.

Higher capital inflows have resulted in currency appreciation mainly in Asia and Latin America, prompting central banks contemplate a range of measures to hold back the tide.

Late on Tuesday, an Indonesian central bank deputy governor said it was considering curbs on foreign holdings of its short-term debt, but the government said on Wednesday it has no plan to limit foreign holdings of its debt.

Talk of controls has surfaced from Turkey to South Korea either by taxing investments or by curbing lending from overseas.

Brazil last month slapped a 2% tax on financial inflows while South Africa loosened exchange controls allowing corporates to hold cash overseas.

India has refrained thus far from imposing any such curbs.