Large inflows into a country could be destabilising, said Nobel laureate, Joseph Stiglitz, adding "I don't think it's a coincidence that the two Asian economies to escape the financial crisis of 1997 were India and China, both of which had capital controls."
Stiglitz was speaking to the media on the sidelines of a conference on investment organised by mutual fund major, Pioneer Investments, in Vienna.
According to him, one way India could tackle the problem of excessive fund inflows could be by imposition of a tax on capital gains made on these flows.
Citing the example of Chile, Stiglitz said that the government there had imposed controls to stabilise inflows into the country. The Indian government had recently denied any plans to restrict inflows.
Problems with inflows arise when they are not used for investment purposes but to finance consumption, he said. Warning that a recession was looming large in the United States, Stiglitz said that emerging economies like India could be hit by it but China may survive.
"It is almost certain that there would be a sharp reduction in growth in the US...it will certainly have an impact on countries like India, while China could survive the recession or sharp slowdown in the US, given its large resources," Stiglitz said.
A two percentage point fall in growth there means the economy contracting by $300 billion. The chances are that the gap could get larger, he said. There could be implications for India because of its fiscal problems, he said.
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