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Foreign Currency Borrowing by Indian Firms: Toward a New Policy Framework

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  • Patnaik, Ila
  • Shah, Ajay
  • Singh, Nirvikar

Abstract

India has a complex multidimensional system of capital controls for foreign currency borrowing by firms. In this paper, we summarize existing regulations, review the outcomes, and discuss areas of concern and recent policy changes. Unhedged foreign currency exposure for firms, the complexity and uncertainty in the policy framework as it has evolved, and questions about regulation-making processes are highlighted. In an emerging economy with a managed exchange rate and incomplete markets, foreign currency borrowing poses systemic risks when left unhedged by large firms that constitute a significant part of the gross domestic product. We identify policy directions to help address these concerns.

Suggested Citation

  • Patnaik, Ila & Shah, Ajay & Singh, Nirvikar, 2016. "Foreign Currency Borrowing by Indian Firms: Toward a New Policy Framework," India Policy Forum, National Council of Applied Economic Research, vol. 12(1), pages 139-186.
    • Handle: RePEc:nca:ncaerj:v:12:y:2016:i:2016-1:p:139-186
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    Cited by:

    1. Rao, R. Kavita & Tandon, Suranjali, 2016. "Revisiting the tax compliance problem using prospect theory," Working Papers 16/169, National Institute of Public Finance and Policy.
    2. Virender Kumar & Poonam, 2024. "An empirical examination of the effect of domestic monetary policy on external commercial borrowings to India," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 14(3), pages 641-661, September.
    3. Bose, Udichibarna & Mallick, Sushanta & Tsoukas, Serafeim, 2020. "Does easing access to foreign financing matter for firm performance?," Journal of Corporate Finance, Elsevier, vol. 64(C).
    4. Shesadri Banerjee & M S Mohanty, 2021. "US monetary policy and the financial channel of the exchange rate: evidence from India," BIS Working Papers 945, Bank for International Settlements.
    5. Dhananjaya K & Krishna Raj, 2018. "Market value and capital structure: A study of Indian manufacturing firms," Working Papers 421, Institute for Social and Economic Change, Bangalore.

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    Keywords

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    JEL classification:

    • F3 - International Economics - - International Finance
    • G1 - Financial Economics - - General Financial Markets
    • D6 - Microeconomics - - Welfare Economics

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