2015- Movement of Capital- India and rest of the World .

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.