THRISSUR: The Reserve Bank of India should issue market stabilisation security bonds to contain the growing inflation rate, said Prof. Errol D’Souza, Indian Institute of Management, Ahmedabad.
Delivering the first V.C. Padmanabhan Memorial lecture on ‘Globalisation’s underbelly: Capital flows and the Indian Economy’, rganised by Manappuram Group of Companies in Thrissur on Saturday, he pointed out that between 1980 and 2004 there was a substantial growth in capital flows to emerging and developing economies.
These flows influenced interest rates, exchange rates, and the macro economy today. "In emerging and developing economies since 2000 these capital flows have been private flows (mainly direct investment flows),
But in India unlike other comparable economies recent capital flows have been predominantly portfolio flows and not direct investment flows, which are risky.
"The capital flows resulted in an appreciation of the exchange rate, which has adversely affected the exports. To prevent such effects the government intervened in the foreign exchange market and accumulated foreign exchange reserves.
“This solved the appreciation problem but created a subsequent problem of a rise in liquidity and a build up of inflation in the economy," he explained. Discussing about the capital flows of world economies he said China was the biggest investor in the U.S. M.B. Nirmal, founder of Chennai-based Exnora International Ltd. inaugurated the function.
‘Serve and sell’ should be the motto of companies, he said. Champion of many environmental activities, he called for effective management of domestic waste.