2015- Movement of Capital- India and rest of the World .
The strength of a financial
system is largely calibrated on its ability to create capital. If we analyze
the currency mechanism worldwide, event those shaped world financial history
were the migration of currency system from Gold standard to Gold pegged standard
to floating regime. And today amidst this floating regime, there is equal
opportunity for every currency to participate evolve, strengthen, weaken its
macro, casting a bearing on its financial system.
The spell of Leveraged economy
and ever expending world economy is a norm, which is not ridiculed but
intellectually justified for its financial preponderance. Every country is
participating and so we are. To add to this mechanism, we are actually a
capital deficit nation in both our domestic and foreign account currency,
warranting our total subjugation to this model of financing an economy.
In the backdrop of these two realities, our
dependence on FII & FDI is immense. Infect we have graduated a long way
from 1992 to 2016 both in quantum and quality of these foreign inflow. There
has been a gradual inflow of foreign currency denominated capital investment in
Indian capital Market bringing a larger respite to the deficit discomfort. The
sources of these inbound capitals are generally capital surplus nation. But of
let there has been emerging tendency from tax havens and smaller nation
encouraging and funneling dubious laundered money into the system. Since this
part of subject is too complicated and offensive, we will leave it to some
other days for discussion.
Today, we are largely able to
mitigate our three challenges currency exchange rate, CAD (Current account
deficit) and domestic requirement of capital through primarily FII and FDI
inflow. And hence the importance of we as a nation able to attract quality
inflow are noticed everywhere. No doubt there are other countries in the world who
are equally competing with us in their pursuit of attracting foreign inflow.
The challenges are oozing from competing macro event and consequent macro variables. Since the macro events are random and varied
few leaves skewed impact than the others in justifying the rational of such
currency migration.
We as a nation certainly cause
heartburn among other nation for the domestic demand we create. Perhaps Malthus as an economist might find it
unpalatable today, where in a rise in a population could be such a guiding
factor of economic propriety. He was the one who laid the contrarian foundation
and certainly sizable numbers of intellectual thinking has supported his claim.
The unflinching Demand has
largely mitigated our other more weakened macro variables. We certainly do not
inspire confidence on account of our Inflation number, Nominal Interest Rate, Domestic
wealth Inequality, exchange rate and hydro carbon energy insufficiency.
The capital market and currency
inflow is biggest leveler. It finds its level and draw stoic inspiration when
it comes to distributing capital asset. Though we are a formidable recipient of
capital benediction, we are not the largest.
A recent date of 2015 capital inflow arranged in pictorial form
illustrates the point I am trying to reinforce.
We have miles to go before we set the dice rolling. And reversing the trend would be the day of
redemption for the illuminating past of the nation.
