The challenges of opening up India's capital account

Abstract

A key objective for any open economy is to avoid a financial or balance of payments crisis – a goal that often calls for trade-offs between liberalisation and maintaining control of the economy. This column explores the trade offs India has made.

India increasing openness to the flow of funds in and out of the country presents challenges as well as opportunities. It has left India’s policymakers struggling to strike a balance between key objectives such as nurturing a healthy growth rate, keeping a competitive exchange rate, ensuring moderate inflation and strengthening India’s financial system. This column explores how India has been negotiating these trade offs.