Focus must be on FDI and not on FII inflows, says Raghuram Rajan

Cautioning against over-dependence on FIIs (foreign institutional investors), who bring in hot money, Chief Economic Adviser Raghuram Rajan, on Tuesday, said the government should focus on foreign direct investment (FDI) and open more sectors to such inflows.

"We have to be careful that we are not overtly dependent on external investors… that this is an environment when the external investor is quite fickle...," Dr. Rajan said in his first media interaction.

Betting high on India's reform initiatives, foreign investors had pumped in more than Rs.9,000 crore (about $1.67 billion) in the country's equity market this month.

"The safest form of financing is through FDI, without any doubt because it is long-term... If you can make more financing through FDI, you are safer and so to that extent we can open up more to FDI... There will be efficiency, because there will be more competition in local economy," Dr. Rajan said.

Recently, the government has taken a number of reform initiatives such as opening the multi-brand retail chain to FDI, hiking diesel prices by over Rs.5 a litre, capping the number of subsidised LPG cylinders to six a family a year, allowing foreign carriers to pick up stake in domestic airlines and liberalising FDI rules for the broadcasting sector.