MUMBAI: At a time when the market tanked for eight sessions on the trot and investors have lost more than Rs 40 trillion of their invested value so far this year, finance minister Nirmala Sitharaman has said foreign funds are selling because “India is delivering good returns to them and are thus booking profits,” and not because of any market failure.
Responding to a question on continued selling by foreign portfolio investors (FPIs) who have dumped more than Rs 2 trillion worth of equities since October, Sitharaman played down the flight of foreign funds from the country, saying “our economic foundations are strong and that we offer an environment where investments are yielding good returns and therefore foreign funds are booking profit.”
Finance and revenue secretary Tuhin Kanta Pandey chipped in saying in times of global volatilities like the one that is being witnessed now, FPIs tend to go back to their country of origin which is mostly the US and that India is not the only emerging market that has been falling. And there is no question of any market failure.
Claiming that there is nothing wrong with the economy and therefore the market volatility has nothing fundamental to it, he said, “...the economy is firing from all cylinders despite the external headwinds and will continue to perform well”.
To another question on inflation especially in the context of the looming trade war and the resultant imported inflation, Sitharaman, who was in town as part of a post-budget presser along with all the secretaries in her ministry, said the government’s supply measures and the Reserve Bank's demand-side initiatives are working in tandem to control price rise.
Meanwhile, the financial services secretary M Nagaraju said the government is "actively considering" raising the deposit insurance cover being extended by the Deposit Insurance and Credit Guarantee Corporation, beyond the present Rs 5 lakh.
He also ruled out any systemic issues facing the cooperative banking sector, saying barring some stray incidents of failures, all of them are strong financially and are very successfully regulated now. Wherever there are failures, the regulator intervenes and does the needful, he said in response to a question on the crippled New India Cooperative Bank, whose management was sacked by the RBI last Friday and put a ban on cash withdrawals by depositors.
On the insurance sector, Nagaraju said the proposed amendments once cleared by Parliament will allow a composite licensing regime which will enable insurers to all products unlike the present law that does not allow life insurers to offer non-life and health products.On the impact of the income tax rate reductions, Pandey said, this should let at least Rs 35,000-45,000 crore of additional fund inflows into banks, as all those who benefit from higher tax exemptions will not be spending all those accrued savings.