RBI prefers stable foreign investment to gap CAD: HR Khan

The Reserve Bank of India (RBI) prefers a stable foreign investment flow to gap the current account deficit (CAD), Deputy Governor HR Khan said here today.

"We have capital scarcity and our current accout deficit continues. Thats why, we look forward to have stable FDI inflow. We will not like Indian economy to have too much of exposure on the debt sector," Khan said.

A recent report by the Prime Minister's Economic Advisory Council had said the CAD will be around 2.7% of the GDP in the current fiscal. However, with the decline in exports and rising import bill, it is being feared that the deficit will widen further.

Inflows through the FDI route are more stable while foreign institutional investors' money is more fickle.

Citing the East Asian crisis of 1997, Khan said RBI has adopted a stance of going slow on opening the debt market for foreign investment.

He pointed out that some East Asian nations were in trouble in the past due to opening up their debt market too soon.

Referring to global FDI flow, he said, "Post-crisis, there was a lull in investment. It (global FDI flow) was almost stagnated USD 1.1 trillion in 2010. But, in 2011 first half, there is slight increase. But, there can be bit of issue due to happenings in the world."

He, however, pointed out that despite occasional hiccups, India remains one of the most preferred investment destinations in the world.

On impact of ongoing debt crisis in Europe on India, Khan said that recent developments had created major concerns across the world, which is certainly going to affect investors' appetite.

"We have been certainly insulated (in the past), but we can't be totally decoupled (from the global economy). The more and more, we globally integrate, we derive the benefits and also have to pay the price of this," he said.