Finance minister P. Chidambaram with Bharti Enterprises chairman Sunil Mittal and CII president R. Seshasayee in New Delhi on Thursday. Picture by Ramakant Kushwaha

New Delhi, May 24: Finance minister P. Chidambaram wants better management of foreign funds to neutralise their impact on prices and the exchange rate.

He said the country needed to learn from the experience of China in managing the funds. The huge inflow of dollars has a crucial role in inflation and the rise in the rupee, which is hurting exporters.

“We must learn to manage these inflows, but we must not do anything that will restrict investment,” Chidambaram said at the annual general meeting of the CII today.

Though the rupee depreciated today to 40.60 to the dollar, it is on an uptrend for quite some time because of the inflow.

Overseas borrowings by companies, stock purchases by global funds and foreign direct investments have pushed up the rupee by nearly 14 per cent in 10 months.

The RBI’s absence from the forex markets has also contributed to the surge. When the rupee appreciates, the RBI often intervenes to check its rise and protect the interests of exporters.

Dollar purchases by the central bank were down to $2.3 billion in March compared with $11.9 billion in February.

To contain the dollar deluge, the government has placed restrictions on external commercial borrowings (ECBs) by real estate companies. Last week, it barred ECBs for integrated townships and lowered the ceiling on the interest rate to make it difficult for smaller players to raise funds through this route.

Price check

The finance minister today asked industry not to cash in on a demand-supply mismatch and raise prices of essential items.

“Industry is working at near full capacity utilisation. Pricing power has returned to industry and is being exercised. We appeal to them not to exercise the power arbitrarily,” he said

The rise in global prices of metals and commodities such as crude has also pushed up the inflation rate.

Other factors behind inflation are shortages in items of daily consumption such as sugar, wheat and pulses and the higher government outlay on social welfare schemes.

Chidambaram said the supply of essential items was not keeping pace with the demand. He said the government has initiated steps to improve the supply. These measures would have an impact after some time.

“Wherever we can augment supply, we are doing that and wherever we can moderate demand, we are going all out to contain it,” the minister said.

Tata advice

Tata group chairman Ratan Tata today urged industry to think big and be globally competitive. This will help the economy to record a double-digit growth rate.

However, Planning Commission deputy chairman Montek Singh Ahluwalia warned of the infrastructure hurdles to growth.

Singh urged the private sector to partner the government in infrastructure projects for small-scale and medium-scale industries.

He said the agriculture sector needed to grow by at least 4 per cent for an overall 10 per cent growth.