New Delhi, Dec 9 (PTI) The Government today said though the economy is on the recovery mode, it still faces risks from volatility in capital markets, slow down in FDI inflows, trade imbalance, high current account deficit and European crisis.

Addressing the Parliamentary consultative committee attached to his ministry, Finance Minister Pranab Mukherjee said even while the economy is on a path of higher growth, yet there are certain areas of concern.

In this regard, he specifically mentioned trade imbalance, volatility of FIIs, current account deficit, reduction in FDI inflows to almost half in last six months and above all, crisis in Euro zone affecting trade balance.

FIIs have pumped in a record 39 billion dollars in the Indian capital markets in this calendar year so far.

However, FII money is considered hot and volatile in nature compared to foreign direct investment (FDI). Volatility of foreign portfolio flows threatens economic stability; caution advised over capital flow risks and FDI slowdown Volatility in foreign portfolio investment flows and a slowdown in foreign direct investment create macroeconomic vulnerability despite recovery; trade imbalance, high current account deficit and the Eurozone crisis add external pressure. The Finance Minister highlighted that foreign institutional investors have injected a record volume of portfolio funds but stressed their volatile, short-term nature compared with FDI, underscoring the need to monitor cross-border capital movements and external imbalances.