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Evolution of capital controls on foreign institutional investment in India

Author

Listed:
  • Radhika Pandey

    (National Institute of Public Finance and Policy)

  • Rajeswari Sengupta

    (Indira Gandhi Institute of Development Research)

  • Aatmin Shah

    (L & L Partners)

  • Bhargavi Zaveri

    (Indira Gandhi Institute of Development Research)

Abstract

In this paper, we trace the evolution of capital controls on foreign in- stitutional investment in India, by hand constructing a a dataset of legal interventions with respect to foreign institutional investment in India. We classify interventions into different categories depending on whether they pertain to procedural or substantive measures (such as investment limit or conditions), and also classify them depending on the asset class that they affect. We assign scores to each intervention depending on whether it re- stricts or liberalises the regime governing foreign institutional investment in India. The dataset can be used to understand the manner in and extent to which, Indias capital account has gradually opened up since the economic liberalisation reforms of the mid 1990s and the circumstances in which these interventions were made. It can also throw insights on the impact of different legal interventions with respect to foreign institutional investment on outcomes such as foreign investment inflows into India, currency volatility, credit growth and stock market returns.

Suggested Citation

  • Radhika Pandey & Rajeswari Sengupta & Aatmin Shah & Bhargavi Zaveri, 2019. "Evolution of capital controls on foreign institutional investment in India," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2019-034, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2019-034
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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2019-034.pdf
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    References listed on IDEAS

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    1. Barry Eichengreen & Ricardo Hausmann & Ugo Panizza, 2007. "Currency Mismatches, Debt Intolerance, and the Original Sin: Why They Are Not the Same and Why It Matters," NBER Chapters, in: Capital Controls and Capital Flows in Emerging Economies: Policies, Practices, and Consequences, pages 121-170, National Bureau of Economic Research, Inc.
    2. Forbes, Kristin & Fratzscher, Marcel & Straub, Roland, 2015. "Capital-flow management measures: What are they good for?," Journal of International Economics, Elsevier, vol. 96(S1), pages 76-97.
    3. Ila Patnaik & Ajay Shah, 2011. "India's Financial Globalisation," IMF Working Papers 2011/007, International Monetary Fund.
    4. Gurnain Kaur Pasricha, 2017. "Policy Rules for Capital Controls," BIS Working Papers 670, Bank for International Settlements.
    5. Andrés Fernández & Michael W Klein & Alessandro Rebucci & Martin Schindler & Martín Uribe, 2016. "Capital Control Measures: A New Dataset," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(3), pages 548-574, August.
    6. Martin Schindler, 2009. "Measuring Financial Integration: A New Data Set," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 222-238, April.
    7. Pasricha, Gurnain Kaur & Falagiarda, Matteo & Bijsterbosch, Martin & Aizenman, Joshua, 2018. "Domestic and multilateral effects of capital controls in emerging markets," Journal of International Economics, Elsevier, vol. 115(C), pages 48-58.
    8. Radhika Pandey & Gurnain K. Pasricha & Ila Patnaik & Ajay Shah, 2021. "Motivations for capital controls and their effectiveness," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 391-415, January.
    9. Ministry of Finance, 2006. "Report of the Expert Group on Encouraging FII Flows and Checking the Vulnerability of Capital Markets to Speculative Flows," Working Papers id:351, eSocialSciences.
    10. Patnaik, Ila & Malik, Sarat & Pandey, Radhika & Prateek, 2013. "Foreign investment in the Indian Government bond market," Working Papers 13/126, National Institute of Public Finance and Policy.
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    Cited by:

    1. Patnaik, Ila & Sengupta, Rajeshwari, 2022. "Analyzing India's Exchange Rate Regime," India Policy Forum, National Council of Applied Economic Research, vol. 18(1), pages 53-85.
    2. Nidhi Aggarwal & Sanchit Arora & Rajeswari Sengupta, 2021. "Capital account liberalisation in a large emerging economy: An Analysis of onshore-offshore arbitrage," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2021-013, Indira Gandhi Institute of Development Research, Mumbai, India.

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    More about this item

    Keywords

    Capital control measures; Capital flows; Capital account liberalisation; International financial integration;
    All these keywords.

    JEL classification:

    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • F3 - International Economics - - International Finance
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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