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Tuesday, November 24, 2009

No strong inflow measures now - PM adviser

India can absorb nearly $100 billion of dollars in capital inflows, nearly double for what is on track this year, before it needs to take strong restrictive measures, one of the prime minister's top advisers said on Tuesday.

"At the moment I don't see any strong measures to control capital inflows," C. Rangarajan, chairman of the Prime Minister's Economic Advisory Council, told Reuters in an interview. "But if the flows become very strong, then we could take some action to restrict some of the inflows."

"If it touches close to $100 billion, then that is the time when we really need to act. But at the moment I think that all the indications are that the total capital flows during the current year would be $57-$60 billion, and that is manageable."

Any initial curbs would be on speculative funds in sectors such as real estate and borrowing abroad to spend at home.

"I would really say that the restrictions may be imposed only on those capital flows which are considered to be speculative. added Rangarajan, one of Prime Minister Manmohan Singh's closest advisers.

Rangarajan's statement came after Brazil and Taiwan have taken steps to curb hot money inflows, and other governments are keeping a watchful eye on inflows, wary that they could fuel asset price bubbles.

Economists have said the Indian government may need to impose restrictions on capital flows at some point to head off volatility in the stock and commodity markets.

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