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Management of International Capital Flows: The Indian Experience

Listed author(s):
  • Abhijit Sen Gupta

In this paper we devise quantitative techniques to analyze the management of foreign capital flows in India over the past three decades. The paper argues that India’s overall approach towards liberalization of the capital account can be characterized as gradualist and calibrated, whereby certain agents and flows have been accorded priority in the liberalization process, from the viewpoint of ensuring financial stability. A cross country analysis indicates that the calibrated approach has resulted in India being ranked towards the lower end of the spectrum in terms of capital account openness. We analyze the extant regulations governing different types of foreign capital flow, and highlight the evolution of various types of capital flows over the recent period. To evaluate Indian macroeconomic management in the face of capital flows, we quantify the various policy options under the classic problem of “impossible trinity†. We find that India, like other emerging markets, has also been confronted with the various alternatives under †impossible trinity†and has chosen to adopt an intermediate regime, juggling the objectives of monetary independence, exchange rate stability, and an open capital account as per the needs of the economy.

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File URL: http://finance-and-trade.htw-berlin.de/fileadmin/HTW/Forschung/Money_Finance_Trade_Development/working_paper_series/wp_03_2010_Sen-Gupta.pdf
File Function: First version, 2010
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Paper provided by Hochschule fuer Technik und Wirtschaft, Berlin in its series Competence Centre on Money, Trade, Finance and Development with number 1003.

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Length: 32 pages
Date of creation: Aug 2010
Publication status: Published in Berlin Working Papers on Money, Finance, Trade and Development, August 2010
Handle: RePEc:mtf:wpaper:1003
Contact details of provider: Web page: http://finance-and-trade.htw-berlin.de

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