Mumbai, Feb 6: There should be no lock-in period for foreign institutional investors (FIIs) as they base their investments on the assumption that they would be free to infuse or withdraw capital, R H Patil, managing director of the National Stock Exchange, said. ``If a lock-in period for FII investments is introduced, the whole basis of such investment changes and their confidence is shaken,'' he noted.According to Patil, economic reforms would be part and parcel of future government polices irrespective of the party coming into power at the centre. ``All political parties are playing the same tune of economic liberalisation. There is some differences of opinion on matters relating to opening the insurance to the private sector and multinationals, but we must realise that insurance is not the whole part of the economy,'' the NSE chief said.
Patil said political instability in the country would not make foreign investors shaky. He cited the example of Italy, one of the fastest growing economies in theworld despite witnessing several governments during the recent past.
Patil said Moody's announcement that it would review India's sovereign rating for a possible downgrade should not be perturbing since Moody's present rating of BAA3 is higher than Standard and Poor's rating of `BB'. ``This shows that Moody's has a more optimistic outlook on India. Even if they downgrade India's sovereign rating, the new rating would be the same as that assigned by its rival Standard and Poor's, he said adding that the recent economic turmoil has shaken these rating agencies. ``The companies in countries like Indonesia and Korea borrowed heavily from abroad. The reason why this crisis has occurred is because the short term borrowing component was high. Rating agencies later realised that short-term borrowings by these countries was 60-70 per cent more than they thought it was'', he said. Patil said that the domino effect of the economic crisis in the South-East Asia and the far East will not spread to India as the economydoes not depend so much on trade with these countries as much as the West. ``If there is a catastrophe of this magnitude in the West, sentiments here will definitely be affected'', he said. He said the stock markets in India were integrated to a small extent with those in the South-East Asia and the far East. Patil attributed India not becoming a victim to the South-East Asian economic debacle to the capital controls in this country. Citing the example of Korea, he said that short-term debts over there were more than $100 billion, while the forex reserves amounted to $17-20 billion.
``The Indian government has done the right thing by not giving too many clearances for short term borrowings'', Patil opined. To a question whether he is bullish on the Indian rupee, the NSE chief said the rupee's value depended on many real factors and infrastructure support to the industry was one of them. ``We have not been able to improve the quality of infrastructure to industry. Factories suffer from power shortages, theroads are poor and clearing goods in Indian ports takes more time compared to other countries. In these circumstances, if the country wants to make its exports competitive, it can do so only by way of devaluation'', he said.
He agreed that devaluation is a short-term solution towards making exports attractive. ``If we are serious that our exchange rate should not depreciate, we should pay attention to building our infrastructure'', he remarked. On the recent stringent measures adopted by the Reserve Bank of India (RBI) to check the speculation in the foreign exchange, the NSE chief said that the assessment of the apex bank was that there was an artificial pressure building on the rupee and the depreciation of the currency was not justified by real factors. ``The RBI's measures were intended to teach speculators a lesson. These measures seem to have succeeded since the rupee is stable now'', Patil said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
