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Capital account liberalisation in India: Volatility of capital flows and selective policy issues

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  • Shivangi JAISWAL

    (NMIMS University, Bangalore, India)

  • Dr. N. KUBENDRAN

    (NMIMS University Bangalore, India)

Abstract

This paper attempts to investigate the relationship between capital account openness and occurrence of financial risks in India by employing finite distributed lag model. Annual data from 1979 to 2018 on real effective exchange rate, real interest rate, international reserve and net capital have been used to compute Exchange Market Pressure index and the degree of capital account liberalization. The study finds that opening up of capital account will have harmful effects on the financial stability of the country in the initial years, say a year or two. However, the degree of financial risks will go down in later years by influencing capital inflows. Finally, the study has suggested that the Reserve Bank of India needs to take precautionary measures to mitigate short term volatility of capital flows before choosing fuller capital account convertibility.

Suggested Citation

  • Shivangi JAISWAL & Dr. N. KUBENDRAN, 2021. "Capital account liberalisation in India: Volatility of capital flows and selective policy issues," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(1(626), S), pages 201-218, Spring.
    • Handle: RePEc:agr:journl:v:1(626):y:2021:i:1(626):p:201-218
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    References listed on IDEAS

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