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Capital Flows at Risk: India’s Experience

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  • Muduli, Silu
  • Behera, Harendra
  • Patra, Michael Debabrata

Abstract

With the spate of emerging market crises since the 1990s and the experience with the global financial crisis and its aftermath, attention has turned from the benefits associated with capital flows to their consequences such as accentuating financial vulnerabilities, aggravating macroeconomic instability and spreading contagion. For India, portfolio flows are the most sensitive to shifts in risk sentiment globally and spillovers. Applying a capital flows at risk approach, it is observed that in an adverse scenario, potential portfolio outflows can average up to 3.2 per cent of GDP. In a black swan event comprising a combination of shocks, potential portfolio outflows can rise to 7.7 per cent of GDP, highlighting the need for maintaining liquid reserves to quell such potential bouts of instability.

Suggested Citation

  • Muduli, Silu & Behera, Harendra & Patra, Michael Debabrata, 2022. "Capital Flows at Risk: India’s Experience," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 76(6), pages 73-88.
    • Handle: RePEc:zbw:espost:260522
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    References listed on IDEAS

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    More about this item

    Keywords

    Capital flows; global risk aversion; capital flows at risk;
    All these keywords.

    JEL classification:

    • B27 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - International Trade and Finance
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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