"What sort of money is good for India? FII or FDI? We believe it is the latter type of money that is better for India. As the year FY09 has amply demonstrated, FII money tends to be really volatile and could lead to huge asset price shocks when things turn bad. On the other hand, they also tend to fuel inflation and create asset bubbles when the going is good. The FDI money on the contrary, tends to be more long term in nature and helps in nation building by creating real on the ground assets. It is not as if the FII money does not achieve the same objective. However, in India, a greater part of the FII inflows, especially in equities are speculative in nature and hence, not that useful to the real economy. Thus, the increase in FDI inflows into India in the near future is indeed heartening. While the FII inflow is also expected to remain buoyant, we just hope that most of it is also long-term in nature. Otherwise, be prepared for a volatile ride. "
Source: LiveMint
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