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

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  • Patnaik, Ila
  • Shah, Ajay
  • Singh, Nirvikar

Abstract

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

Suggested Citation

  • Patnaik, Ila & Shah, Ajay & Singh, Nirvikar, 2016. "Foreign Currency Borrowing by Indian Firms: Toward a New Policy Framework," India Policy Forum, National Council of Applied Economic Research, vol. 12(1), pages 139-186.
    • Handle: RePEc:nca:ncaerj:v:12:y:2016:i:2016-1:p:139-186
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    1. Radhika Pandey & Gurnain K. Pasricha & Ila Patnaik & Ajay Shah, 2021. "Motivations for capital controls and their effectiveness," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 391-415, January.
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    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. 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).
    2. 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.
    3. 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.
    4. 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.

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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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