Capital Flows an Indian Perspective-Neha Verma

8/8/2019 Capital Flows an Indian Perspective-Neha Verma

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N.L DALMIA INSTITUTE OF MANAGEMENT

STUDIES AND RESEARCHMUMBAI

Final Project

Project report

On

CAPITAL FLOWS-AN INDIAN PERSPECTIVE

Submitted to

Prof. Gulab Mohite

BY-

Neha B Verma

PGDBM-FINANCE2006-2008


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N. L. DALMIA INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH

CERTIFICATE

This is to certify that the project titled

CAPITAL FLOWS-AN INDIAN PERSPECTIVE

Submitted by:

Neha B Verma

To N.L.Dalmia Institute of Management Studies and Research as per the partial fulfillment of

requirements for the PGDBM course

Specialization FINANCE

During the Academic Year 2006 2008, has been carried out by her under our supervisionand guidance

Prof. GULAB MOHITE

Prof. P. L. ARYA Project Guide Director


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Acknowledgement

An enormous project of this nature calls for intellectual nourishment,

professional help, and encouragement from many quarters.

I express my sincere appreciation to Prof P.L.Arya (Director, N.L.Dalmia

Institute of Management Studies and Research) for considering me as an

eligible candidate for this project and for providing me with the infrastructure for

the project and also the entire faculty, who have provided me the knowledge and

guidance that has facilitated the successful preparation and completion of the

project.I also extend my gratitude to Prof Gulab Mohite for giving me this

opportunity to work on this project and for shaping my understanding in this

particular project through his rich and varied contribution.

Last but not the least; I acknowledge the timely help extended by all my

colleagues and all the unmentioned names from the concerned field.

NEHA B VERMA

PGDBM IV (FINANCE)

N. L. Dalmia Institute of Management Studies and Research


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Executive Summary

Capital flows into an emerging economy has become a hot topic for discussion since there been a

lot of debate on the sustainability of India growing at the pace it is doing now i.e. @ 8.5% (as per 2007 - 08) hence even the RBI has made a committee to study this issue. Mr. Rakesh Mohan

(Deputy Governor of the Reserve Bank of India) is the head of this committee. This report gives

a small but a different dimension of looking at the capital flows. It was prepared taking into view

on India emerging as the next most powerful nation after China in future years.

The different components of capital flows can be determined as FDI, FII, External Commercial

Borrowings etc. In this report, only FDI and FII are taken into consideration. When we look at

the flows can conclude from the analysis that FDI are more stable than FII. One interestingquestion that can be raised out of the flows coming into India is the WHY factor; as to why are

these flows coming to India. There can be 3 aspects to this question. The first being that, Is it a

pure Interest rate arbitrage? Second being the speculative motive, this can be termed as hot

money. The third aspect is a little complex in nature, which is, Whether India is benefiting from

these inflows? The answer to this may not be known but this report will give the insights to the

above-mentioned question.

Again when we take the capital flows into considerations there are various issues coming out of it as:

1. Will capital flows increase Volatility in the financial markets? According to my findings

the answer is mixed.

2. Will it sustain in Medium and long run? To sustain the capital flows reforms process

should be continued.

3. Will India head towards yet another Asian Crisis? No, As Indian economic growth is

mostly fuelled by domestic demand, country is in a better position than its counterparts.

This report will focus on the key point of sustainability of the growth rate that India is currently

experiencing. There are certain recommendations that I have mentioned in this report.


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Table of Contents

N.L DALMIA INSTITUTE OF MANAGEMENT STUDIES AND RESEARCH ........ ... 1

Chapter 1 Introduction ................................................................................................................... 1

Chapter 2 External Capital Inflows ........................................................................................ ....... 2

Chapter 3 Indias Economic Prospects ................................................................................... ...... 3

Are they real? India and Globalization; Indias Comparative Advantage ................................. .. 3

3.1 India and Globalization ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .... ... 3

3.2 Indias Comparative Advantage ......... ......... ......... ......... ......... ........ ......... ......... ......... ......... ...... ..... . 4

Chapter 4 Composition of capital flows ......................................................................................... 6

4.1 Causes of capital flows ........ ......... ......... ......... ......... ......... ......... ......... ......... ........ ......... ......... ........ ... 6

4.2 Effects of Capital Inflows on the Financial Sector ......... ......... ......... ........ ......... ....... ..... ..... ..... ..... . 7

Chapter 5 Sustaining Global Growth ............................................................................................. 8

Chapter 6 Analysis of the Data of FDI and FII ...................................................................... .... 10

Chapter 7 Issues Regarding Capital Flows ................................................................................. 10

Conclusion: Is Indias Growth Sustainable? ......................................................................... ..... 11

Annexure 1 .................................................................................................................................... 14

Trends in flows of FDI and FII flows into India from 1993 to January 2008 ......... ......... ........ ........ 14

Annexure 2 .................................................................................................................................... 15

Calculation of Standard Deviation and Co-Efficient of Variation. .................................................. 15 Bibliography .................................................................................................................................. 16


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Chapter 1 Introduction

Since there has been a huge amount of money that has been transferred from one country to

another and has a consequence of this there has been a lot of debate about the positives and

negatives on the issue of capital flows by various economists across the world. There are

basically two opinions on this issue.

1. On one hand there those who say that the capital flows for the recipient country are very

dangerous.

2. On other hand there are others who say that there is no need to worry about these flows

and hence policy makes should concentrate more on the domestic policy rather than

thinking on this issue.

Falling risk premiums were considered as the cause behind the inflows in Latin American

Countries in the early 1990s but since there were consistent capital flows changed thisassumption. And a new assumption that rose above the assumption of risk premium was of

domestic interest rates. All the emerging countries that had higher interest rates resulted in higher

capital inflow of capital flows.

Well both the assumptions are it fall in risk premium or rise in Interest rates cannot prove to have

a proper explanation for rise in capital flows.

There were other factors as well, In particular, the recession in developed countries reduced rates

of return on capital and made investors look for higher returns elsewhere. Likewise, since the

Asian financial crisis, foreign capital has retreated from most emerging economies, regardless of

the quality of domestic policies. In some cases, the sudden stop has been particularly traumatic.

And has often left deterioration in the other emerging economies.

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House Hold

Firms Government

ExternalSector

S a l a r i e s

I n v e s t m e n t s

Banks

MutualFunds

Insurance

MarketsInvestment Intermediaries

Chapter 2 External Capital Inflows

The external sector refers to a basket of economic measures regarding any individual country.

These measures include:

Balance of payments

Current account

Capital account and financial account

Foreign direct investment

Portfolio investment

Other investment

External debt

Average exchange rate of private external debt

Debt service

Reserves assets

International investment position

In every Economy there are 4 Major Sectors and there are different externalities surrounding it.

In India money flows from household sector which is in surplus to firm sector which is in deficit

for various reasons like Expansion, Diversification, Risk Hedging etc. The money also flows

from house hold sector to Government via banks and other financial intermediaries. The money

that goes to the firm sector flows back to the household sector via salaries in this circular flow of

money there are many leakages which leads to the needs in the External Sector coming to play a

major role. Following is the flow diagram of the Circular flow of money in India.

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Chapter 3 Indias Economic Prospects

Are they real? India and Globalization; Indias Comparative Advantage

India has now become one of the fastest growing economies worldwide. Hardly a day passes

without somebody saying that India is arriving or has arrived. Even optimistic forecasts, like

BRIC (Brazil, Russia, India and China) by Goldman Sachs have been updated by newer

discoveries of Indias potential and fresh hopes. Our place in the world economy seems

unshakeable and set to grow.

3.1 India and Globalization

There has been a debate worldwide on globalization; not even a single meeting will go till the

end till the word globalization isnt heard off. Again there are 2 people First are those who totally

disregard globalization and its process and other are with the globalization.Well Frankly speaking neither view for or against is correct. What we can do is by accepting

it as the realty which has the momentum of its own. Our job is to just maximize the profits of it

by reducing the risks coming out of this process. Today the destiny is in our own hands.

Well to define globalization there can be 2 meanings of it and whether globalization is good or

bad can only be explained when we look at both the meanings of it. On one hand we have the

meaning of globalization as the shrinkage of distance or the other meaning that it posses is of the

technological changes and associated policy changes that have brought the world economiesmore and more integrated with each other. Let us have a look at the second definition of

globalization.

In this particular sense India is in a very advantageous position considering the position of

Indias foreign trade and positive capital flows. Today India is at a very different position that it

would have been some 20 years ago. This is mainly because of a theory of comparative

advantage and India has more comparative advantage in the world as compared to other nations

of the world.

One more aspect that globalization has brought for India is may be it has brought in a Service

Revolution into India. Earlier the main focus was on manufacturing sector which includes the

manufacture if foods and agricultural commodities now the focus has changed to Services Sector

i.e. Transport and trade and banking and construction etc.

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In the last few years, there has been a phenomenal change in the conventional view of services

and their role in the economy. This change has been facilitated by unprecedented and unforeseen

advances in computer and communication technology. As a result, the development of certain

services is now regarded as one of the preconditions of economic growth, and not as one of its

consequences. The boundary between goods and services is also disappearing. Many industrial

products are not only manufactured, but they are also researched, designed, marketed, advertised,

distributed, leased and serviced. From Indias point of view, these developments provide

opportunities for substantial growth. For example: The fastest growing segment of services is the

rapid expansion of knowledge-based services, such as, professional and technical services. India

has a tremendous advantage in the supply of such services because of a developed structure of

technological and educational institutions, such as this one, and lower labor costs.

Well one of consequence of globalization can be that any vulnerability of one country can betransmitted to another country very easily like in East Asian Crisis

Indias last hope is the youth of India to go out and face the globalizing world which will keep

Indias Interest and Integrity and its indivisibility and its future potential. If all goes well India

will be a very different place to live in 2025, and truly will become a great nation which

everyone will be proud of.

3.2 Indias Comparative Advantage

Every country has a comparative Advantage for India there are 4 comparative advantages that

India has let us take a brief look those comparative advantages of India

1. Skills

2. Integration of financial markets

3. Technology i.e. less interference of government

4. Strong International Reserve Position

Let us take a look at it individually

The first is our skills. This is evident not only in knowledge industries. Even in cars today, a lot

of new content, or what economists call value-added, comes from technology, skills, software

and so on. Our growing mass of educated people, larger than the population of a European

country, is an asset a comparative advantage over other nations.

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The second factor is the integration of financial markets, the practically free flow of capital.

Money is no longer a constraint for a company with a new project, either at home or abroad,

even though we do not have full capital account convertibility. There is no shortage today even

of equity capital.

The third is the change of technology, aided by a great reduction in government control. Today, a

new project will take much less time than earlier days. Today, the corporate sector has

restructured, new entrepreneurship has come of age, we are buying companies, the US is afraid

of their jobs being taken away by us rather than the other way round.

The fourth factor is our strong foreign exchange position. . Part of the excitement about India in

the outside world is owing to the fact that India is no longer a debtor country looking for aid.

India is lending to the IMF, instead of borrowing from it. This has brought has complete change

in the global outlook for India. India is now perceived as a strong economy, compared todeveloped economies

If we compare ourselves to China, we find that we have similar entrepreneurship skills and

similar forex advantage although china has more reserves than what India has but still its

progressing and we are emerging has a attractive destination for investment We also have the

strength of our democracy and the power of the people. So a growth of 9 % or 10 % is no longer

a dream and can be very well been achieved.

But there are a few hurdles on this course; the main reason for this is what people call the public-

private dichotomy. If we see there has been a considerable increase in private sector but public

sector lacks behind.

For Example if u want to open a sports facility in India you will have to knock at least 8 planning

commission and government doors before you get the permission for it and each person will have

his staff which will be needed to be made happy.

Second hurdle can be of accountability and this has to be taken seriously. All the ministers have

now been made accountable to the powers that they enjoy.

Thirdly the government must do some sort of outsourcing there are many areas where it should

not play any role.

Well these hurdles may not matter in where India is looking for a 6% growth but will defiantly

matter when India wants to grow at 9% or the growth that India may see may be unsustainable.

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Chapter 4 Composition of capital flows

Capital flows can be broadly classified into 3 types as FDI (Foreign Direct Investment), FII

(Foreign Institutional Investment) and ECB (External Commercial Borrowing). All 3 of them are

different in nature some are more dominant and some are more stable some may bring in more of

just capital while some may bring stability and growth. Although there are many who rate the

above flows from least volatile to be ECB followed by FDI and FII. There is no statistical proof

of the above hypothesis. There is no evidence to term money as HOT or COLD. There is no

evidence that a particular flow may bring more of economic growth or particular flows are

sustainable and hence good for the economy. The countries where you find that there is more

scope will attract more of portfolio flows while in some countries these portfolio flows may

required to pay premium. And hence the countries which are poorly developed in terms of

financial markets may find it easy to attract more of FDI rather than FII

4.1 Causes of capital flows

What can be the possible causes of these flows from one country to another in last decade and

this decade? The main reason behind these flows coming to India may be coz of search of higher

returns and hedging of risk. Let us see the factors in more detail.

4.1.A Internal Factors

When we say about the Internal Factors we can see 2 main reasons behind this flow of capital1. Creditworthiness

2. Productivity Gains

Creditworthiness has improved as a result of External debt restructuring.

While the productivity gains are arising out of reforms in the overall financial structure.

Well there was also a argument that only domestic changes made these flows to emerge but this

hypothesis was proved wrong when in some countries the external factor contributed more and

even post dated some of these flows. Following are the 3 main things to observe when a country

is surged with capital flows.

Countries with high investment to GDP ratio, low Inflation have received more capital

flows as compared to other countries

FIIs are more sensitive to interest rates.

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4.1.B External Factors

When we say the external factors the first thing that attracted the flows were the decreasing

global Interest rates and global recession in United States and Japan this may be the primary

reason behind the flows coming to India looking for more opportunities. There are mainly 2 main

development in these flows, First, falling communication costs, strong competition, and rising

costs in domestic markets, led firms in industrial countries to produce abroad to increase their

efficiency and profits. This triggered FDI to splurge into emerging economies. The second is the

development of Financial Structure and importance of institutional investors.

When we say development of financial structure we mean better opportunities in financial

markets to earn better returns and better opportunities for Risk diversification and liquidity.

4.2 Effects of Capital Inflows on the Financial Sector

The effects of capital flows in a economy can be broadly classified into 2 types first is that it

increases the quasi fiscal deficit and secondly it also increases the maturity mismatch between

the bank assets and liabilities which in turn reduce the quality of the loans provided, Although

the vulnerability of the financial sector because of lending led to high and unsustainable price

rise in the assets. This will result in resource misallocation and then eventually will lead to fall in

the asset prices and eventually lead to fall in the Interest rates. According to the World Bank,

countries with the highest increase in bank lending were not only the ones that later experienceda banking crisis but also were usually the ones in which financial vulnerability was higher

measured by increases in the current account deficit, real exchange rate appreciation, excess

consumption, and underinvestment.

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Chapter 5 Sustaining Global Growth

We can see the strongest growth period in the history of world economy leading in the forefront

by China and India so the main questions to be answered here are:

1. What have been the sources of this global prosperity?

2. How can we ensure that the momentum is sustained over the medium term?

3. And what are the implications for global imbalances, including in particular the large

U.S. current account deficit?

1. What are the Sources of the Global Productivity Boom?

All the countries who have had major structural changes in opening of their economies and

advancing market reform have led to the increase in the global productivity boom. This

productivity growth is also supported by the term globalization. The shifting of productive

structure has also been supported by the increasing capital flows especially FDI and FII. Theseflows are not only a source of finance but also of new technology and management skills. Better

policies in these countries will ensure sustainability of these flows in the recipient countries

2. Can the Productivity Boom Be Sustained?

Globalization word is often taken in the wrong sense it is taken more in negative sense, it says

that the process of globalization only helps a few countries across the world and within those

countries only a few states. And hence we need major changes in those areas of low income

countries these changes can be easy access to advanced countries, the gains from the

globalization should be more properly distributed

These things are more important in emerging markets rather than in developed economies.

Global integration of trade and financial markets has produced more benefits for these countries

and the main cause behind this is the increase in the income levels that has eventually allowed

the living and working standards to converge towards the levels found in developed economies.

But this is only possible if the advanced economies share the gains of this growth with the

middle income economies.

Another crucial issue to maintain this boom in the productivity is maintaining growth even with

the aging population this is so especially in the advanced economies there are risks of mismatch

between the labor and the needs. The rise in the aging population will increase the fiscal cost

which is controlled as of now due to rapid expansion and growth. The last concern is that of the

technological and communication gap in the advanced economies and emerging and middle

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income economies, because of this gap the advanced economies are reaping big profits. The

sustainability of the productivity will also depend on the employment of a large chunk in the

agricultural sector at least in India and China and hence the agricultural sector of these countries

still remains as the main concern.

3. Implications for the Unwinding of Global Imbalances

If there is a slowdown in the productivity growth it will have its consequence on the investment

and consumption trends this will in turn have an impact of global imbalances. To Maintain the

same GDP growth rates in the face of slower growth of total productivity will require even more

capital accumulation than what is there as of now. At the same time the future income growth of

consumption will also have to be maintained at the same level although the gross aggregate

consumption is likely to increase with the increase in the population. This may increase the real

interest rates. And hence countries with large current account deficits like the United States mayfind it difficult to attract more foreign capital. Although they have an advanced and most

developed financial system we must remember one thing that other emerging markets may cope

up with the gap between the Financial Sector of these advanced economies and emerging

economies. More generally, joint action by both advanced and developing economies will be

important to ensure an environment conducive for the smooth unwinding of global imbalances.

There has to be changes not only in the countries own interest but this change should be for

concurrent actions across all the countries so bring about the synergies in these economies.

Although these adjustments may bring short term cost but will in turn provide better long term

stability.

Concluding Remarks

Every one remains optimistic on the future of the sustainability of the growth but reforms

are needed to ensure not only to maintain the same productivity but also to share the

benefits arising out of these reforms. Everyone is aware of the rising population and

concerns of globalization. Care must be taken that some groups may be adversely affected

and need to be given greater support in adjusting to increasingly global markets, without

obstructing the process of change. Doing so will prevent the emergence of cautious

approach to easier sustaining the global growth. Providing such reforms is never easy but it

is a gradual process and will defintly provide financial sustainability.

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Chapter 6 Analysis of the Data of FDI and FII

When we look at the data of FDI and FII we can see some key findings from the data. FDI flows

are more stable than FII flows and this hypothesis can be proved using certain Statistical tools

viz.

1. Standard Deviation

2. Co-Efficient of variation

3. Correlation

Standard Deviation: Using Standard Deviation we can find out how much the observations

deviate from the center i.e. the Mean So from the data that is given below we can conclude that

FDI deviate less from their overall average. (See Annexure 3)

Co-Efficient of Variation: Since Standard Deviation is only half of the story we cannot conclude

from Standard Deviation that the data is more stable than the other, Hence we need to calculateCo-Efficient of variation which will help us to calculate the exact Deviation of the data and the

volatility of the data.(See Annexure 3)

Correlation: The correlation tells the relation between any 2 variables from the above analysis we

can conclude that there is very less correlation between FDI and FII it is hardly 0.24 percent

which is less but there are positive signs since there is at least a positive correlation. (See

Annexure 3)

Chapter 7 Issues Regarding Capital Flows

From the above report and its analysis although we can see that for long term stability we have to

more of FDI than FII but still we need to solve certain Issues which arise out of these flows.

These issues are very complex in nature and need to be examined individually. These issues can

be listed out as follows:

1. Volatility

2. Sustainability

3. Crisis Prevention

4. Proper Exchange Rate Management

5. Capital Account Liberalization

6. Liquidity Management

In this report we can look at one of the Issues which are essential to Success of India which is

of Sustainability.

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Conclusion: Is Indias Growth Sustainable?

The question of Indias growth whether is it sustainable or is it that India is over heating. On one

hand there are lots of structural problems For instance, in Bangalore; water is only available 2-

1/2 hours a day. Bangalore is not some remote village in India. It is the IT hub of India; the

average manufacturer loses 8-1/2 percent of their output to power outages. That is more than 4

times the percentage than you see in China or Brazil. Sixty percent of manufacturers own

generators. That is several times what we see in China and Brazil, at 27 percent and 17 percent,

respectively. There are some about 800 million people living in India under Rs. 100 a day and

hence poverty also remains a major issue in India. But still even after having such discrepancies

India is still growing at the rate of 8% which is very remarkable. There is no secret to this; this

growth is only possible because of the changes brought in by the major economic reforms

brought in by the government in 1991. Everyday in the news paper and news channels acrossIndia are talking about the services sector of India. But actually we see that manufacturing and

the industrial sector is doing quite well, too, if we look at the trend line i.e. compare with the

GDP trend line it is outperforming the GDP. More recently we have seen some big success

stories too for instance Probably the most high-profile of them is Tata Steel which as many of

you undoubtedly know has just purchased Corus, the former British Steel, for $12 billion. Tata

Steel is by no means alone in that category. Everything looks good till here but we are also

seeing the signs of over heating. Capacity utilization is at its peak but then it is the lowest since

we started to calculate. The parameters are used to calculate the labor unemployment needs to be

changed. Although the wage growth in India is increasing but it is not increasing at the unskilled

sectors. The wholesale price index has increased by 2% on a YOY basis. When we turn our

attention to the financial markets side we can see that there is a boom in the stock markets and

since the markets are not as deep as in the advanced economies a person can easily get the credit

cards and loans for housing etc. but this has in turn raised the valuations. We see a boom also in

the real estate market. Since earlier this decade, we have seen house prices double in some parts

of India. Now since we have seen the signs of India being overheating let us have a look at the

other side of the coin. There are three things from which we can conclude that India is growing

are

1. Demographics

2. Productivity Boom

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3. Financial Sector deepening.

Demographics the dependency ratio is falling in India. As the counterpart to that, we see a big

increase in the working age population in that some 140 million people will enter the work force

over the next decade. In fact, a key policy challenge is to make sure that all those people can find

employment.

Productivity when we say productivity we are referring to total factory productivity not only the

output but also the productivity of labor capital and human capital taking into consideration all

the inputs of the economics. This productivity has increased from 1.5% to 3 %.

Financial deepening Private credit is relatively low in India as compared to many countries in the

world. For example, it is about 43 percent of GDP in India compared to about 75 percent in Asia

at large, but there is evidence as we said of overheating as well. So the question is how to

balance these two factors. How do you get sustainable growth with price stability in India? Wesee four steps here.

1. Money policy

2. Public Debt

3. Infrastructure

4. Capital Markets

We can see that on money side we RBI has been very accommodative on this splurge. RBI has

timely has intervened and made the statutory requirements for the banks have been increased

although this has reduced the inflation in India but the policy is still on the accommodative side.

Money is growing at about 20 percent a year every year. So a continued tightening is required

and gradual removal of the accommodation is required so that the risk is reduced. Since the

inception of FRBM bill the fiscal deficit is also moving in the right direction. They are in the best

of the shapes. We have seen the overall fiscal deficit, that is, if you combine the state and federal

government fall from move-out from about 10 percent of GDP earlier this decade, to close to 4.8

now. But at the same time, the deficit is still pretty big.

Debt is pretty high, too. Debt is about 80 percent of GDP. So bringing that down would be useful

from a couple of perspectives, like the monetary policy.

Infrastructure as it has been mentioned earlier that infrastructure needs to be enhanced, and

obviously there is a role for the government to play here. Just to focus in on that question for a

second, we can actually see that compared to China, for example, infrastructure investment is

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pretty low. Overall infrastructure investment is about 5 percent of GDP in India, and it is about

three times that in China, so there is some scope it would seem to ramp that up. Finally, on the

capital markets development side, a lot has been written and said about development of capital

markets in Asia, especially, for example, corporate bond markets, but we can see that even by the

metric of emerging Asia, the corporate bond market is pretty small in India. It is only around 5

percent of GDP or maybe slightly less. The different measures that are to be taken can be,

developing the basic foundations of capital markets in India better, the government bond markets

and the money markets and making those more liquid and deep. Also through pension reforms to

expand the investor base for corporate securities.

So the bottom line is, through the combination of these types of steps, through a better

alignment of monetary and fiscal policies, through boosting the infrastructure, and

developing capital markets, we think that India can strike the right kind of tradeoff

between overheating and growth and really make growth sustainable and strong over the

medium-term.

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Year FDI FII1997 126.28 186.511998 29.33 11.721999 99.25 241.572000 120.66 190.652001 164.05 472.042002 178.17 149.272003 113.65 1,138.67

2004 168.91 964.332005 188.63 911.152006 492.45 459.002007 83.22 -5.812008 51.24 290.83

Annexure 1

Trends in flows of FDI and FII flows into India from 1993 to January 2008

Note1. Rupees in Million Crore

2. Data of 2008 is till February only

Source for the above Data is SEBI and Department of policy and promotion of India

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Year FDI FII X - MEAN (D) Y - MEAN (E) X - MEAN 2 Y - MEAN 2 D * E1997 126.28 186.51 -25.04 -230.98 627.21 53,353.76 5784.791998 29.33 11.72 -121.99 -405.77 14,880.85 164,650.37 49498.861999 99.25 241.57 -52.07 -175.92 2,711.61 30,947.96 9160.71

2000 120.66 190.65 -30.66 -226.85 939.80 51,458.81 6954.192001 164.05 472.04 12.73 54.54 162.03 2,974.90 694.272002 178.17 149.27 26.84 -268.23 720.65 71,946.44 -7200.572003 113.65 1,138.67 -37.67 721.17 1,419.34 520,092.90 -27169.592004 168.91 964.33 17.59 546.83 309.48 299,024.87 9619.822005 188.63 911.15 37.31 493.66 1,392.03 243,699.87 18418.402006 492.45 459.00 341.13 41.51 116,371.67 1,722.72 14158.952007 83.22 -5.81 -68.10 -423.30 4,637.21 179,181.48 28825.382008 51.24 290.83 -100.08 -126.67 10,015.42 16,044.36 12676.40

Mean 151.32 417.49 154,187.28 1,635,098.44 121421.61

Vari ance Std Devi ati onCo Efficientof Variation Correlation

FDI 12848.93959 113.3531631 0.749095299 0.181368153

FII 136258.2037 369.1316889 0.884161876

Annexure 2

Calculation of Standard Deviation and Co-Efficient of Variation.

Note3. Rupees in Million Crore

4. Data of 2008 is till February only

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Bibliography

Websites

www.rbi.org.in

www.google.com

www.sebi.gov.inwww.dipp.nic.in

www.imf.org

www.worldbank.org

Reference Notes and Research Working Papers

IS INDIA'S HIGH GROWTH SUSTAINABLE? By Charlie Kramer Division Chief Asia and Pacific Department, International

Monetary Fund

PATTERNS OF CAPITAL FLOWS TO EMERGING MARKETS: A

THEORETICAL PERSPECTIVE

By Zhaohui Chen and Mohsin S Khan for International Monetary Fund

LARGE CAPITAL FLOWS: A SURVEY OF THE CAUSES,

CONSEQUENCES, AND POLICY RESPONSES

By Alejandro Lopez-Mejia for International Monetary Fund

CAPITAL FLOWS AND THEIR MACROECONOMIC EFFECTS IN INDIA

By Renu Kohli for International Monetary Fund
http://www.rbi.org.in/http://www.google.com/http://www.sebi.gov.in/http://www.dipp.nic.in/http://www.imf.org/http://www.worldbank.org/http://www.rbi.org.in/http://www.google.com/http://www.sebi.gov.in/http://www.dipp.nic.in/http://www.imf.org/http://www.worldbank.org/

Capital Flows an Indian Perspective-Neha Verma

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