"Many of you think that the risks of investing abroad are less than the risk of investing in India. That is another short-sighted view. The long term benefits of investing in India outweigh the benefits of investing abroad," he said while speaking at a seminar to mark 25 years of Sebi.
Most important challenge before the country is to revive the investment cycle, he said.
"I would urge investors to rebalance the portfolio and invest more in India. This is where the market is, this is where the market will shift, this is where the demand is, this is where demand will continue to be robust over the next 20-30 years. Indian investors must invest more in India rather than invest abroad," Chidambaram said.
The government had set up a Cabinet Committee on Investment, under Prime Minister Manmohan Singh, to accord fast track clearances to large infrastructure projects.
Observing that there are lot of opportunities for investment in infrastructure sector, Chidambaram said pension fund and provident fund money needs to be mobilised to ease pressure on banks and financial institutions.
"Long term finance still continues to shy away from any kind of risk bearing investment ... We must find some way in which Provident Fund, pension funds invest in infrastructure and other long term projects," he said. India requires USD 1 trillion infrastructure investment in the 12th Plan period ending March 2017.
Regretting that often projects are delayed because of internal and external reasons, Chidambaram said: "We must find some ways in which these risks are mitigated that investors feel confident that if he puts money in long term project in India, the project will be implemented on time, in original cost envelope".
Chidambaram said a large amount of money is flowing into India. In 2012, India received portfolio investment of USD 31 billion. Till mid-May this year, the FII investment is USD 17 billion. "We need to maintain the momentum," he said.
Replying to a query on the decline in rupee, he said flows are copious and there was no reason for rupee to take a beating. The rupee dropped to nearly 9-month low of 56.01 to the dollar yesterday. However, it gained some ground and closed at 55.62 today.
On the impact of scaling back of stimulus by the Federal Reserve on India, Chidambaram said: "The money flowing into India are still modest. They are still a fraction of the overall liquidity that is being pumped into the system. I think there may not be a great impact on India".
US Federal Reserve chairman Ben Bernanke's remarks about the possibility of scaling back of stimulus with improvement in economic conditions sent the global stock markets including that of India into a tizzy.
"The volumes (of FII money into India) are still modest if you look at the total money that is being pumped into the system. So while QE will certainly hurt all countries, if you take all countries together, I don't see why we should not get what we are getting even if they withdraw from Quantitative Easing," Chidambaram said.