Drop in FPI inflows may not have major impact on economy: Govt

Says as long as other capital flows are adequate to finance CAD the fall may not have any major macroeconomic impact

Amid a declining trend in foreign portfolio investments, the government today said the fall may not have any major macroeconomic impact as long as capital flows are adequate to finance current account deficit.

During April-November period of the current fiscal, FPIs had pulled out a sum of Rs 7,008 crore from the country's capital markets after investing staggering funds in the preceding two financial years.

FPIs had made a net investment of Rs 2.77 lakh crore and Rs 51,649 crore in 2014-15 and 2013-14 respectively.

"As long as other capital flows remain adequate to finance CAD (current account deficit), decline in the level of FPI flows may not have a significant impact on the macroeconomic outcome," Minister of State for Finance Jayant Sinha said in a written reply to Rajya Sabha.

He was replying to a question about the impact of slowdown in FPI inflows on the economy.

Sinha said FPI through its impact on the cost of capital helps supplement domestic resources and thereby growth momentum.

It also helps finance the level of current CAD and has implications for the exchange rate. However, a larger than required flow in either direction tends to impact exchange rate and hence to be modulated by the RBI through intervention, the minister added.

Overall, financial services sector accounted for most of the investment, followed by pharma.