India not looking at inflow caps now

By Alistair Scrutton and Himangshu Watts

NEW DELHI (Reuters) - India can absorb nearly $100 billion of dollars in capital inflows, nearly double what is expected this year, before it needs to take strong restrictive measures, one of the prime minister's top advisers said on Tuesday.

Economic growth was picking up, and should hit 7 to 8 percent in the fiscal year starting March 2010, said C. Rangarajan, chairman of the Prime Minister's Economic Advisory Council, adding the biggest worry over the next few months was rising inflation.

"At the moment I don't see any strong measures to control capital inflows," Rangarajan said in an interview for the Reuters India Investment Summit. "But if the flows become very strong, then we could take some action to restrict some of the inflows."

"If it touches close to $100 billion, then that is the time when we really need to act. But at the moment I think that all the indications are that the total capital flows during the current year would be $57-$60 billion, and that is manageable."

He said inflows were $108 billion in 2007/08, when India had previously taken steps to limit capital inflows.

Any initial curbs would be on speculative funds in sectors such as real estate and borrowing abroad to spend at home.

"I would really say that the restrictions may be imposed only on those capital flows which are considered to be speculative. added Rangarajan, one of Prime Minister Manmohan Singh's closest advisers.

Brazil and Taiwan have taken steps to curb hot money inflows, and other governments are keeping a watchful eye on inflows, wary that they could fuel asset price bubbles.