Indian policymakers flip-flop over FII flows..

EPW edit raises the point but misses the main point.

The sheer opportunism of Indian policymakers towards capital inflows is outright double standards. It should actually be titled as a convenient love-hate affair between Indian policymakers and capital inflows. When economy is in trouble we make all attempts to encourage and support capital flows. Just bring them in is the motto. All kinds of statements and proposals are made to attract flows of all kinds – debt. equity, NRI deposits. Just name it. All kinds of representations are made in foreign shores calming and assuring foreign investors.

And then as things stabilize you start talking about hot flows and become artificially uncomfortable. You suddenly acquire new clothes (there aren’t any actually) and express the discomfort towards these flows. The idea is to make sure if things go the other way, you can say I told you so. Be on both sides of the road.

Infact one of the hallmarks of a successful Indian economic policymaker is how much foreign capial flows in during his/her (mostly his) tenure. This obviously pushes equity markets and generates all the vibe. All this hype over Indian economy resurgence has got a big thumbs-up from FII flows who have poured as if there is no tomorrow. Enormous pressures have been applied on policymakers to deliver else the plug will be pulled. The policymakers are doing every bit to make sure the plug is not pulled. The same FII flows have led to our forex reserves to a new high which is showcases as a sign of strength. The reserves did not pile up from heaven. But at the same time we become concerned over all this pile up.

No one ever asks and of course they never say “Who started this at the first place?” You first make highways and then give instructions for the car drivers to drive as crazily as possible and then suddenly become uncomfortable. Moreover, in some statements typically in foreign locales they will say how we need to be more open and liberal towards capital flows. This brings them brownie points from the already cheering foreign shores. And then in other domestic ones these concerns will be raised based on how domestic economies get hit from these flows. Getting applauds from both the ends is the mantra.

The sad truth is our economy’s performance is based on the thinking of foreign flows. If they think it is good we are good else it is all rotten.

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