(a) whether the Foreign Institutional Investors (FIls) rush to invest in Indian equity, when dollar goes weak against rupee and keep away if rupee goes weak against dollar;
(b) whether this practice is good for Indian economy;
(c) if so, the reasons therefor; and
(d) the steps proposed to be taken to save the country`s economy?
THE MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI S.S. PALANIMANICKAM):
(a) to (c) The empirical analysis indicates that India has experienced positive net flows
in every year since 1993-94, except in 1998-99. During the last 4-5 years the Flls flows
into India have been less volatile compared to other emerging markets. This behaviour of
Flls inflows could be attributed to several factors, such as, continued reforms. in the
financial sector, strong economic fundamentals, improved prudential regulatory standards,
attractive valuations of companies and exchange rate behaviour. According to the information
furnished by the Securities and Exchange Board of India, the data for Fll net investments
vis-a-vis rupee dollar exchange rate over the last two years on a monthly basis does not
seem to suggest a consistent relationship between Flls investments and movement in rupee
dollar exchange rate. There are prudential investment limits on Flls` investment in spot
and derivatives markets. Further, the total investment by Flls in both spot and derivatives
markets in calendar year 2004 was only 5.83 per cent of the overall equity market turnover.
(d) In view of the reply to parts (a) to (c) above, does not arise.