FM expresses concern over volatile FII flows

Expressing concern over volatile nature of FIIs flows in the recent past, the government today said that necessary policy needs to be put in place to make the financial sector more competitive in view of global development.

"The events over the last two years and the outflows and inflows of FII equity more recently, has brought home with renewed force the volatile nature of certain private capital flows.

"Though such flows provide critical risk capital with long term benefits to the economy, the volatile nature of these flows has a negative impact on investment decisions," Finance Minister Pranab Mukherjee told Lok Sabha.

In his reply to debate on the Union Budget 2009-10, Mukherjee said the Government has to create the necessary policy environment that helps in addressing such concerns.

FIIs turned net sellers after Lehman Brothers, a US-based financial services provider, filed for bankruptcy in mid-September last year. They took out over Rs 50,000 crore on net basis.

This year, they remained net sellers in the first two months, turning a slight net buyer in March. After that, FIIs have been net buyers in every month.

He said though the global financial crisis did not affect Indian banks or financial market directly, but it did expose a number of weaknesses in our financial system.