RBI Anxious Over Instability of Asset Prices

April 9, 2007	(Be the first to rate this story!)  Loading ...
Print This Story   Email This Story Subscribe Newsletter

The RBI has asked the government to revise FEMA regulations to ensure volatility of short term capital inflows.

The RBI has taken such a move in response to the ongoing debate on foreign investment in real estate. Such FII investments could also represent investments through participatory notes and sub accounts, where there are issues over the sources of funds and the investor’s identity.

Allowing unrestricted FII inflows into Indian real estate will enable investments by FIIs and their sub accounts to access the booming market. It is significant to note that there is an increase in investments in assets like equity and real estate in the past few years. This has generated asset price bubbles, which was there during the time of East Asian Crisis of 1997-98 and the Japanese Economy in the 1980’s.

Often, a rush in FII investment is seen at the time when economy witnesses a slowdown. And, these investors are the first to withdraw as well, due to easy exit available to them, which undoubtedly puts a high stain on the financial sector.

Intelligence agencies seem anxious over portfolio investments, especially on account of lack of adequate disclosures in the case of participatory notes and FII sub accounts.

News Published Under:   Banking and Finance |

Comments