India has capacity to absorb huge capital inflows: OECD

Amid a debate on curbing foreign capital due to surge in their inflows into India, the 33-nation OECD today said the country has the potential to absorb the overseas funds, as it along with other emerging economies, will continue to drive the global growth momentum.

"There is a huge potential in Indian market to absorb the money that is flowing in. If by easing the money supply US returns to high growth that would benefit India also,'' OECD Deputy Secretary General Richard Boucher told PTI on the sidelines of the World Economic Forum.

He said India and other emerging economies are driving the global growth story.

"Globally emeging economies are driving the growth moemntum. Asia is leading the pack, with India and China on high growth trajectory. The momentum would continue," Boucher said.

Boucher said the steps taken by advanced countries, like the United States, to ease the monetary situation in the country could trigger capital flows to emerging economies.

US central bank's decision to buy $600-billion worth of government securities, may lead to further surge in capital inflows into India.

Organisation for Economic Co-operation and Development (OECD) countries, comprising rich nations like US, Japan, UK, Germany and France, account for more than 60 per cent of the global output.

He said the recovery process in other parts of the world are slowing and easing money supply is essential to return to high growth. Also, the huge demand in India's infrastructure and other social projects would keep the money supply balanced.

A huge foreign fund has come into Indian equities and debt market so far this year. While foreign investors have put in $28 billion in stocks, in debt instruments the amount is $9 billion.

Earlier, Prime Minister's Economic Advisory Council Chairman C Rangarajan had said time for curbing capital inflows has not yet come, since the country has the capacity to absorb $70 billion during the year without any problem.

The spurt in capital inflows, he said would also help in easing the liquidity situation.

"I think the time for acting against capital flows has not come at the present moment, but we need to watch the capital inflows," Rangarajan said.

Finance Minister Pranab Mukherjee had also said that there are no plans to put curbs on capital inflows, even though the Reserve Bank of India had said that it may intervene in the forex market if inflows were volatile and lumpy.

Pointing out that the current account deficit (CAD) was likely to be 3 per cent of the Gross Domestic Product (GDP) this fiscal, Rangarajan had said, "This will mean something like $45-50  billion... (India) can also accommodate comfortably upto $20 billion as additional reserves. Therefore, capital inflows into the country up to $70 billion should not pose any problem."