new Delhi: The International Monetary Fund (IMF) has said that India, which has received a record number of foreign direct investments (FDI) in the past few years despite the severe pandemic, has several safeguards in place to mitigate risks from capital inflows. ,
According to a report in PTI, IMF’s first deputy managing director Gita Gopinath said that there are many benefits of capital inflows.
In his speech, he mentioned that they finance necessary investments, helping to insure against certain types of risks. He said that there are many benefits to the countries by having capital flows into India and getting those capital flows also benefits.
Finance Minister Nirmala Sitharaman said in the Rajya Sabha on Tuesday that FDI in the country was $500.5 billion during the Modi government and India remains among the top five FDI recipient countries in the world.
India’s FDI inflows in 2020-21 stood at $81.72 billion as compared to $74.9 billion in the previous fiscal.
Gopinath said there are other types of financial risks associated with large inflows of capital.
There are already a large number of capital restrictions for India. The government actively uses these restrictions in practice when the external environment changes. Therefore, by placing restrictions on the quantum of corporate external borrowing, that is one instrument they use. And they use it in response to changing external circumstances.
He said that the Indian economy has some buffer for capital flows. Gopinath said, “However, it is still in the process of liberalizing its capital accounts, and as its financial markets deepen, its financial institutions deepen, by allowing more forms of capital flows.” Could move on to more.”
He mentioned that capital flows are desirable as they can bring substantial benefits to the recipient countries. But they can also result in macroeconomic challenges and financial stability risks.
“The dramatic capital outflows we saw at the start of the global pandemic, and the recent turbulence and capital inflows in some emerging markets after the war in Ukraine are reminders of how volatile capital flows can be and the impact it can have on economies. Maybe, said Gopinath.
According to the report, the IMF has released a paper on the Review (IV) of Institutional Approaches on Liberalization and Management of Capital Flows. IV was adopted in 2012 and provides the basis for continued fund advice on policies relating to capital flows.