Monday, February 24, 2014

Capital account liberalization

I have a op-ed today in the Indian Express here which argues that India needs to tread cautiously with full capital account liberalization.

1 comment:

Ramblings of an 'aspiring' Iconoclast said...

Thank you for this piece. Ever since the mayhem caused by QE taper, I have been thinking about the evils of CAL. Clearly, rapidly developing countries like China and Japan have benefited from reduced dependency on highly unstable foreign capital flows. Though the relatively better performance of Rupee this year, despite the taper, shows that economic fundamentals have improved, or are at least perceived to have improved.

As rightly pointed out, bond markets don't do the private sector a world of good. As regards the Indian government, this paper (http://nipfp.org.in/media/medialibrary/2013/09/WP_2013_126.pdf) shows that foreign investment in Indian government bonds is a measly 1.6% ($11 bn). This is surely manageable through domestic capital.

All of the above clearly makes a good case for holding off on CAL.