Public "panic" over immigration is causing economic harm to the UK, Vince Cable has warned.
He said overseas students were being deterred from studying at British institutions and tight visa controls were causing difficulties for foreign experts working in the country.
The Business Secretary said foreign students were being caught up in the "very torrid and emotional" argument about the number of immigrants in the UK. Mr Cable insisted there was no cap on the number of overseas students but there was a problem of perception.
Speaking at the Global Universities Summit in Westminster, he said the debate over immigration "does incubate these very deep emotional feelings about foreigners".
Highlighting problems with the visa regime, he said: "I was at one of our leading engineering companies a few months ago.
"I was introduced to the chief engineer, who was making the most sophisticated engines for Formula 1 cars and he happened to be Indian, and he was coming to the end of his visa and under the existing rules he was going to have to go back to India and reapply for admission to the UK, right in the middle of a high-pressure contract. It was completely absurd.
"But that is the kind of restriction that is introduced in order to placate public panic that does create an economic harm."
Prime Minister David Cameron has said he wants to see net migration fall to the "tens of thousands" by 2015. Official figures last week showed that in the year to September 2012 net migration fell, with a 22% decrease in the number of foreign students.
Because overseas students were counted as immigrants under international rules, Mr Cable said their number was "easily translated into a flood of immigrants".
He added: "When, last week, the number declines, this is a great triumph for immigration control, which is quite absurd and unfortunately is seriously distorting the debate on sensible university policy and, indeed, sensible immigration policy. I just want to make absolutely clear, as far as the Government is concerned we have no cap on the number of overseas students, we don't propose to introduce one."
The richest self-made Brits
Cable warns of immigration 'panic'
The Monaco-based billionaire is said to be worth more than £4.2bn, with Topshop and Topman among the country's most successful brands. His first job, aged 12, was working for a shoe importer. He set up his first business at 15 with a £20,000 loan, on-selling imported jeans from the Far East to London-based retailers.
Branson's first successful business venture came in 1976 when he set up Student magazine aged just 16. In 1970, he founded a mail-order record retailer and within a year had opened his first shop on London's Oxford Street – Virgin Records. His fortune is estimated at £3.085 billion, according to the Sunday Times rich list.
The inventor gave his name to the household vacuum cleaner that would make him a fortune of £1.45 billion. James Dyson first reinvented the vacuum cleaner with the launch of his dual cyclone bagless 'G-Force' cleaner in 1983, followed more recently by the hand dryer and the fan. In 1997, Dyson was awarded the Prince Phillip Designers Prize, and elected a Fellow of The Royal Academy of Engineering in 2005.
Founder of Specsavers, Bristol-born Dame Mary Perkins is Britain's first female self-made billionaire, reportedly worth £1.15 billion. The 67-year-old and her husband Douglas, 68, founded the eye-care company in 1984 and they can now boast more than 900 stores across Britain. Perkins was made a Dame Commander of the Order of the British Empire in 2007 as recognition for her work.
Recently retired Beckham is the highest earner in British sport, according to the Sunday Times Sport Rich List. 'Brand Beckham' that has seen the 38-year-old amass a fortune of £165 million from endorsement deals and salary payments from his company, Footwork Productions, over the last decade. But Beckham is still some way off the richest sportsman in the world - golfer Tiger Woods, who is worth a staggering £570m.
Yorkshire Tory peer Lord Kirkham entered the billionaire league in 2010 when he sold his furniture company, DFS, for a reported £500m. In 41 years, Kirkham grew the brand, which started on the outskirts of Doncaster, to 79 stores, three factories and more than 2,600 staff. He received a Knighthood in 1995, a Peerage in 1999 and a CVO in 2005. He now owns a large share in Iceland supermarkets and is worth a reported £1.1billion.
The former Beatle takes the top spot in the Sunday Times Rich List of musical millionaires, sharing a £680 million fortune with his wife Nancy Shevell. McCartney has topped the list of wealthy musicians every year since it was formed 1989 when his fortune was estimated at £80 million.
The chairman of Carphone Warehouse and Talk Talk, Essex-born Dunstone, 46, started his retail empire selling mobile phones from his west London flat in 1989. His fortune rose by £396 million to £1 billion in a year, after the demerger of Carphone Warehouse and Talk Talk. Carphone Warehouse is Europe's largest independent mobile phone retailer and Dunstone was awarded a Knighthood in 2012 for services to the mobile communications industry.
Author of the hugely successful Harry Potter series, Joanne Kathleen Rowling, has a net worth of £560 million – making her the world's richest author. Rowling wrote the first Potter books on a manual typewriter while a single mother living on benefits. The manuscript for the first Harry Potter novel was rejected by 12 publishers and when finally accepted, Rowling received an advance of just £1,500. Harry Potter is the highest-grossing film series of all-time and the brand has been estimated to be worth as much as £10 billion.
East-ender Lord Sugar, best known for his no-nonsense judging on BBC1s The Apprentice, started his career at 16, selling car aerials and electrical goods out of a van he had bought with savings of £50. In 1968 at the age of 21, Sugar started home electronics company, Amstrad (short for Alan Michael Sugar Trading). By the age of 40 he was worth about £600m. Sir Alan sold Amstrad in 2007, and is now worth a reported £770m, with much of his wealth coming from his extensive property empire.