India may take steps to moderate capital flows, which are expected to swell after a steep 75 basis point cut in interest rate by the US Federal Reserve earlier this week, Finance Minister P Chidambaram said on Thursday.
The cut will widen the difference between interest rates in the US and India, and the capital flow may increase, he told reporters attending the World Economic Forum in Davos.
He, however, did not elaborate on the measures that New Delhi would initiate to curb inflow of foreign funds. Last year, market regulator Sebi had done away with derivative instruments like Participatory Notes to check fund flow inequities.
Even before the rate cut in US, Chidambaram had said on January 17 that any drastic rate cut would have consequences like greater capital flow and faster appreciation of rupee.
The rupee has risen over 15 per cent vis-a-vis the greenback since October 2006, affecting Indian exports.
He had also said that a possible recession in the US was itself not a cause for concern as "our exports to the US are significant, but not so significant that we will be gravely affected."
Chidambaram also said on Thursday that he expected the Indian economy to expand by 8.5 per cent next fiscal (2008-09) than the previous forecast figure of close to nine per cent. The target has been revised factoring in turbulence in the US markets.
To a question, the finance minister ruled out setting up a Sovereign Wealth Fund -- on the lines of government's overseas investment arm in Singapore and other countries -- saying India does not have a fiscal surplus to take up such exercises.
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