CAPITAL FLOWS AND EXCHANGE RATE MANAGEMENT

Integration with the global economy has opened India to cross-border flows of not merely goods and services, but also financial capital. India is now a preferred destination among the emerging market economies for foreign investors. Is this transition necessarily beneficial for the Indian economy? What are its consequences and how is it to be regulated? How has the Indian economy successfully averted a financial crisis in the era of economic liberalization, unlike many other developing economies?

This short introduction provides answers to questions such as these by analysing the basic forces driving capital flows, their impact on the exchange rate, and their implications for foreign reserves and domestic money supply.