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

Author

Listed:
  • Patnaik, Ila

    (National Institute of Public Finance and Policy)

  • Shah, Ajay

    (National Institute of Public Finance and Policy)

  • Singh, Nirvikar

    (Economics and Sarbjit Singh Aurora Chair of Sikh and Punjabi Studies at UCSC)

Abstract

India has a complex multidimensional system of capital controls for foreign currency borrowing by firms. In this paper, we summarise 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 GDP. We identify policy directions to help address these concerns.

Suggested Citation

  • Patnaik, Ila & Shah, Ajay & Singh, Nirvikar, 2016. "Foreign Currency Borrowing by Indian Firms: Towards a New Policy Framework," Working Papers 16/167, National Institute of Public Finance and Policy.
    • Handle: RePEc:npf:wpaper:16/167
    Note: Working Paper 167, 2016
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    References listed on IDEAS

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    5. Paul Krugman, 1999. "Balance Sheets, the Transfer Problem, and Financial Crises," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 6(4), pages 459-472, November.
    6. Aghion, Philippe & Bacchetta, Philippe & Banerjee, Abhijit, 2001. "Currency crises and monetary policy in an economy with credit constraints," European Economic Review, Elsevier, vol. 45(7), pages 1121-1150.
    7. Rao, R. Kavita & Tandon, Suranjali & Mukherjee, Sacchidananda, 2016. "Corporate Tax: A brief assessment of some exemptions," Working Papers 16/165, National Institute of Public Finance and Policy.
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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. 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).
    3. 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.
    4. 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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    More about this item

    Keywords

    Capital controls ; External debt ; Market failure;
    All these keywords.

    JEL classification:

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

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