India’s crisis man for cap on inflows

Y V Reddy,the man credited with largely saving India from global meltdown is a worried man.

Expressing concern over the rising capital flows into the country,former Reserve Bank of India governor Y V Reddy said that the time has come to devise ways to control them.

The policy boost given by the US Government to revive its economy is one of the factors that is causing high inflation in countries like India,he said.

“USA is trying to pump in liquidity to revive its economy. Quite a bit of that liquidity is going to India and China. So,it is not serving the purpose. Liquidity is coming to countries where inflation is very high. There is already a bubble building up and therefore something has to be done,” Reddy said on the sidelines of an event here.

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He said now the time has come to address the issue of capital flows and think about ways to control them.

About two to three years back,everyone thought that restriction on capital flows was bad. But now there is a rethinking about it. We should think about the action the country should take to reduce excessive capital movement and also what is the origin (of capital flow),he observed.

The former central bank governor pointed out that the capital flows would also depend on the difference of tax rates among the countries.

When there are tax differential regimes,capital movement is high from one regime to another and it has been accepted in principle by G20 and is looking at it,he said.