Hot money is too hot Mr.Chidambaram

Between the time 1991 to 2013 the major change is the way ‘Hot money’ has dominated the Indian market ( read stock market) – meaning the fluid way the capital moves in and out through the FIIs. While FIIs are always welcome, though the communists are always wary of them, it is they who are orchestrating the run on the rupee. While FIIs are causing the ‘run on the rupee’ they are comparable to friction meaning they are a necessary evil. Too much of friction causes the vehicle to stall, too little causes breaking problems.

While the earlier blogs were critical of Mr.Chidambaram this blog is exploring the way the nation (India) needs to act now. Between hot money ( of FIIs) and FDI the more preferable one is FDIs. For FDIs to come in we need to concentrate in Manufacturing and infrastructure where India trails far below China. For FDI to come in we need to have manufacturing hubs like Chennai, Pune and Delhi for automotive ancillaries. More such hubs needs to come and urgently so and for different industries is a must and also different areas in the nation this will ensure equitable growth. Although the China story is disputed as lopsided development, which is agreed , infrastructure is the major difference between the two.  There is no question that China has provided the infrastructure to the people where India is lagging far behind.

Better infrastructure would mean more FDI comes to the country. Better FDI would mean the exchange rate is less volatile as FDI is long term commitment compared to FIIs’ short term ‘fair weather friends’.

Why is China far ahead of India in terms of infrastructure?

While it is conceded China’s communist leadership is steamrolling its way to remove the bottlenecks in infrastructure projects India has only itself to blame in the form of corruption and state versus centre bottlenecks. I am not saying Chinese policies are better than India’s, but in infrastructure development it is better than India.  If you look at the latest news about the port of Mumbai – Nhava Sheva at New Mumbai. It has slipped behind the port of Colombo. Colombo has taken Chinese help and modernized their port to compete with the likes of Singapore. This is no mean achievement because Colombo was rated below Mumbai and it has overtaken the Indian port this year. This is even more remarkable if you see the Island  nation was in ethnic turmoil as recently as in 2009. More importantly the population of Srilanka is much less than the population of Tamil Nadu an Indian federal state.

So the final lesson the Indian state needs to learn is that if Sri Lanka could boast of a port of higher caliber than Mumbai then we need to sit up and listen……….are we listening Mr. Chidambaram?

Say yes to FDI and moderately say no to ‘Hot Money’.