India is likely to witness a surge in capital inflows as investors may find the country an attractive bet in the backdrop of an uncertain global environment, a top Reserve Bank official said on Saturday.
“Money tries to come to places where it gets better returns. So from the point of view of capital flows, you do have the likelihood of more uncertainty in the rest of the world and therefore more money coming to India,” RBI Deputy Governor Usha Thorat told reporters here.
Foreign Institutional Investors have, so far, invested around $ 5 billion in the domestic share market against a total investment of $ 17.45 billion in 2009.
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Policymakers, worldwide, are watching the developments associated with the euro zone crisis, which broke out after Greece nearly defaulted on public debts.
To avert the deepening crisis, euro zone countries and the International Monetary Fund formed a $1 trillion rescue package to bailout Greece.
The Reserve Bank, which has started withdrawing emergency monetary stimulus measures of the crisis period, is in a dilemma about hiking policy rates next month to facilitate the exit while the recovery is still nascent.
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Noting that India is getting increasingly integrated to the global economy, Ms. Thorat said this makes the nation less immune to the developments happening abroad although “there is immediate negative impact on India (because of the crisis).”
Ms. Thorat said the growth in developing countries like India and China has been good, backed by recovery in industry and services sectors although the country’s agriculture output is yet to pick up.
Replying to a query, she added that Indian banks have a healthy asset quality and “there is nothing to worry.”
Many banks, including the country’s largest, State Bank, had witnessed a rise in their bad loan levels after the financial downturn impacted the ability of customers to repay loans.
The RBI, which is slated to announce its quarterly review of the annual monetary policy on July 27, is widely expected to hike its short-term lending and borrowing rates (repo and reverse repo) by 0.25 per cent but to leave the mandatory cash reserve ratio untouched as cash conditions are tight.