Capital controls temporary, best policy is growth: Rangarajan

Mumbai: Capital controls have become more respectable since the 2008 financial crisis but must be seen as temporary measures, the chairman of Prime Minister Manmohan Singh’s Economic Advisory Council, C Rangarajan, said on Tuesday.

“…Capital controls have gained some respectability in the context of the recent financial crisis, (but) they are always seen as temporary measures,” Rangarajan said in a speech.

[caption id=“attachment_205753” align=“alignleft” width=“380” caption=“PM’s Economic Advisory Council head says that pressure on the rupee will begin easing with the resumption of capital flows in the first quarter of 2012”]  [/caption]

“In fact, the best policy option in these circumstances is strong economic growth, which can absorb the larger inflows without affecting stability,” he said at a graduation ceremony in Mumbai.

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Pressure on the rupee will begin easing with the resumption of capital flows in the first quarter of 2012, he added.

Foreign funds have invested $3.2 billion in Indian equities and $3.3 billion in debt so far this year, according to data from Securities and Exchange Board of India, SEBI.

The rupee gained more than 7 percent against the dollar in January after declining nearly 16 percent in 2011, and hit a more-than-four-month high of 48.60 to the dollar on Monday.

Reuters