This Selected Issues paper analyzes the medium-term macroeconomic outlook for India. The paper highlights that in the strong adjustment scenario, the joint effect of strong fiscal consolidation and ambitious structural reforms would bring the Indian economy onto a sustainable high growth path, reaching 7 percent around the turn of the century. Although there could be some initial dip in growth, owing to the contractionary effects of fiscal retrenchment, this should be temporary as a strong surge in investment, together with productivity improvements related to structural reforms, should drive an acceleration in growth performance.

Abstract

This Selected Issues paper analyzes the medium-term macroeconomic outlook for India. The paper highlights that in the strong adjustment scenario, the joint effect of strong fiscal consolidation and ambitious structural reforms would bring the Indian economy onto a sustainable high growth path, reaching 7 percent around the turn of the century. Although there could be some initial dip in growth, owing to the contractionary effects of fiscal retrenchment, this should be temporary as a strong surge in investment, together with productivity improvements related to structural reforms, should drive an acceleration in growth performance.

VIII. Capital Account Liberalization 1

Since the external crisis of 1990/91, India has shifted dramatically from a closed, dirigiste economy to an increasingly outward looking one. In addition to the ongoing trade liberalization and the dismantling of controls on current account transactions, an important part of this process has involved the opening up of domestic industry to foreign direct investment and of capital markets to portfolio investment. At the same time, policies have sought to limit India’s vulnerability to future external crises by reducing reliance on volatile short-term debt flows and shifting more generally from debt flows to equity-based external financing. Against this background, this paper: (i) takes stock of progress toward capital account liberalization in the first half of the 1990s; (ii) examines the implications of liberalization for market integration and macroeconomic policies; and (iii) discusses the priorities for further liberalization of the capital account.

A. Pre-1991 Regime

For much of the post-Independence period, India had extensive restrictions on both current and capital account transactions (Box VIII.1).2 Foreign direct investment (FDI) was mostly limited to the transfer of technology; portfolio flows were generally not permitted; external commercial borrowing was controlled; and capital outflows were largely prohibited. Access to international markets was mainly limited to public sector enterprises, and small current account deficits were financed through official concessional and non-concessional loans.

In the second half of the 1980s, however, expansionary domestic financial policies—especially the burgeoning fiscal deficit—resulted in a widening current account deficit. In response, external commercial borrowing (ECB) by public enterprises expanded rapidly3 and substantial non-resident Indian (NRI) savings were attracted by the favorable terms set by the Government. As a result, the mix of external financing shifted increasingly towards high-cost, non-concessional debt financing, which led to a deterioration of external indicators. The debt service ratio rose sharply from 9 percent in 1980/81 to a peak of 35 percent in 1990/91, despite quite strong export growth, while debt in relation to GDP rose from 14 percent to about 40 percent. The path of external financing proved unsustainable, culminating in a balance of payments crisis in 1990/91.

Pre-1991 Regime

Foreign direct investment (FDI): FDI was seen primarily as a vehicle for the transfer of technology. A selective policy of case-by-case approvals was designed to channel foreign investment into areas which required sophisticated technology; where critical production gaps existed; or where there were prospects for substantial export potential. Foreign collaboration was also regulated, for example requiring that Indian firms obtain permission to engage foreign technicians. The normal ceiling for FDI was 40 percent of the paid up equity capital, although a higher percentage of foreign equity could be approved for priority industries, and up to 100 percent for wholly export-oriented industries. This regime proved highly rigid, with the result that investment over 1980-91 averaged only $150 million per year.

Portfolio equity investment: Portfolio investment was in general not permitted. However, with the goal of promoting investment in India from oil-exporting developing countries, such countries were permitted to acquire up to 40 percent of equity in companies covered under the industrial policy and export-oriented companies, even if the technology requirements for FDI were not met.

External commercial borrowing (ECB): ECB required prior approval by the Government of India. Applications were considered on a case-by-case basis, taking account of the purpose of borrowing; the export potential of projects; and the capacity to generate foreign exchange to meet debt service and other payments.

Nonresident (NRI) deposits: Various deposit schemes were made available that allowed nonresidents and overseas corporate bodies to repatriate earnings from abroad. As a means of bolstering reserves, these schemes were further enhanced by: (i) offering interest rates above international levels; (ii) providing exchange rate guarantees from the central bank; and (iii) offering certain tax advantages.

Short-term credit: Such credit was in general permitted for trade-related financing only, and required Reserve Bank of India approval. However, use of short-term credit expanded during the late 1980s as the external current account widened.

Outward investment was strictly limited with a goal of conserving domestic savings for domestic investment.

B. Post-1991 Capital Account Liberalization

A partial opening of the capital account has been an integral part of the far-reaching macroeconomic adjustment and structural reform program launched in 1991/92 in response to the external crisis. The general sequencing and strategy of this liberalization involved: i) exchange market reform that unified the exchange rate and stimulated development of an interbank foreign exchange market, accompanied by relaxation of foreign exchange restrictions on current account transactions; (ii) a restructuring of external liabilities away from debt toward equity by the opening of industry to foreign direct investment and capital markets to portfolio flows; and (iii) reform of the domestic banking system and financial markets to improve financial market intermediation and strengthen indirect monetary control.

Exchange market reform

The main goal of exchange market reform (Box VIII.2) was to provide broad and efficient access to foreign exchange for all bona fide current account transactions and authorized capital account transactions at a uniform rate of exchange that would adjust through a competitive market mechanism. Progress toward this goal has been achieved in stages. Following a transitional period with a dual exchange rate system, the exchange market was unified in March 1993. Foreign exchange regulations have been liberalized to allow the development of an interbank foreign exchange market, including forward trading to provide exporters and importers with opportunities to hedge foreign currency exposures. Restrictions and limits on foreign exchange available for service transactions have been eased, and responsibility for implementation has been increasingly shifted to the banks as authorized foreign exchange dealers (ADs). Having achieved virtually full current account convertibility, in August 1994 India accepted Article VIII status, although a number of exchange restrictions have remained in place. Several further measures have been introduced since January 1996 to deepen the exchange market, following recommendations by a Reserve Bank of India (RBI) expert group (the “Sodhani” Committee) (RBI 1995).

Foreign equity investment

The liberalization of the foreign direct investment (FDI) regime started with the new industrial policy announced in July 1991. Under the new regime, FDI up to 51 percent of equity in 35 priority industries is eligible for automatic approval from the RBI. Other proposals are still referred to the Foreign Investment Promotion Board (FIPB), but the approval criteria have been substantially broadened and the approval process streamlined. Additional steps to make FDI more attractive included termination of dividend balancing requirements except for a number of industries in the consumer goods sector and liberalization of treatment of investments by NRIs and Overseas Commercial Bodies (OCBs).

The new Government has set a goal of increasing foreign investment to a target of $10 billion per year. To achieve this objective, the approval process has been simplified further4 and a Foreign Investment Promotion Council formed to promote FDI. The Government is now reportedly considering additional liberalization of FDI rules, including: (i) increasing the foreign equity share eligible for automatic approval; (ii) broadening the list of priority industries and opening a number of sectors where FDI is still prohibited to foreign investors, and (iii) making more transparent the criteria used in approving FDI proposals.

Exchange Market Reform

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The opening of Indian capital markets to portfolio investment has created a second channel for equity flows. In September 1992, approved foreign institutional investors (FIIs) were permitted to invest in primary and secondary markets for listed securities,5 and foreign brokerage firms were allowed to operate in India the following fiscal year. While there is no restriction on the total volume of inflows, total holdings by FIIs, OCBs and NRIs in a company must not exceed 24 percent, and total holdings of a single FII were initially subject to a ceiling of 5 percent. To provide an incentive to invest over more than a short time horizon, the tax rate on capital gains for investments held over one year was set at 10 percent (compared with 30 percent for less than one year). FIIs were permitted to invest in debentures, but only up to a maximum of 30 percent of total investments; they were not permitted to invest in government securities. The new Government has recently liberalized FII investment guidelines, allowing them to invest in unlisted securities while raising the maximum equity holding of any single FII to 10 percent and removing the limit on portfolio holdings of debentures (although the market for government securities remains closed to foreign investors).

In February 1992, Indian companies were permitted to issue equity abroad in the form of global depository receipts (GDRs) on approval from the Ministry of Finance, subject to rules relating to repatriation and end use of funds. These rules were tightened in 1994 and 1995 in response to a surge in GDR issues.6 However, in June 1996, these guidelines were relaxed; in particular, the requirement of a three-year track record was dropped in the case of investments in infrastructure projects; restrictions on the number of issues per year were lifted; and end-use requirements were eased (the categories eligible to be financed were expanded, while the percent of proceeds used for rupee financing or general restructuring was increased from 15 to 25 percent).

Foreign borrowing

Since 1990/91, reliance on high cost and volatile short-term borrowing has been substantially reduced. Toward this end, terms on NRI deposits have been made significantly less attractive. As shown in Chart VIII.1, the spreads between foreign currency accounts and international rates, which rose to 200 basis points in 1991, were virtually eliminated by 1995.7 In addition, the provision by the RBI of exchange rate guarantees for an important category of deposits (FCNRA accounts) was phased out from August 1994, leaving banks to cover their own positions.

CHART VIII.1.

INDIA: EURO-DOLLAR AND FOREIGN CURRENCY DEPOSIT RATES, 1986 - 95

Citation: IMF Staff Country Reports 1996, 132; 10.5089/9781451818598.002.A008

Sources: Reserve Bank of India and International Financial Statistics

The authorities have put also in place procedures to limit the size, and influence the structure, of external commercial borrowing. Approval from the Ministry of Finance is required for all ECB, subject to an indicative annual ceiling, with priority given to infrastructure and export-oriented sectors. Initially, the aggregate ceiling was set at $2 billion a year, but the ceiling has been raised over time, reaching $7.9 billion for 1996/97. To make such borrowing more flexible, rules governing the use of funds have been relaxed. The minimum average maturity has been set at seven years, except that ECB for infrastructure projects is subject to only a five-year minimum average maturity.

Controls on outward capital flows remain quite stringent. Unless residents have earned foreign currency abroad, foreign currency or foreign currency assets cannot be purchased, and as a result residents are unable to diversify portfolio holdings internationally. Exporters still must generally surrender 75 percent of earnings. However, with the view to increasing the international presence of Indian business, approvals for outward direct investment have been granted more liberally.

Supporting financial reforms

An important element supporting the opening of the capital account has been the ongoing reform of domestic financial institutions and markets.

  • In 1992, the Securities Exchange Board of India (SEBI) was given statutory powers as the apex regulator of securities markets. Since then, it has promulgated rules covering capital adequacy of intermediaries, primary market issuance, and secondary market trading practices. In addition, the major stock exchanges have adopted modern screen-based trading systems, and a national depository is being established in November 1996 to begin book-entry title transfer. These steps have improved transparency and strengthened regulatory oversight and should substantially reduce the risks of a major stock exchange scandal such as occurred in 1992, although continued efforts are still required to ensure strong surveillance of rapidly evolving capital markets.

  • The banking system has also been strengthened. Progress has been made in tightening accounting and regulatory standards while problems in weak banks are gradually being addressed (see Chapter VI of this report). Nevertheless, intermediation spreads are still high and further progress is still needed to reduce operating costs of public sector banks and lower reserve requirements.

  • Government securities market reforms have gathered momentum. A system of primary dealers has been introduced to support primary auctions and promote secondary market trading, which should strengthen the scope for open market operations by the monetary authorities. However, rates on government securities are yet to be fully market-determined and securities issued by state governments are still allocated by the RBI among commercial banks on an administrative basis.

C. Implications for Market Integration and Macroeconomic Policies

The partial liberalization of the capital account regime, in the context of broader structural reforms and macroeconomic stabilization, has been successful in promoting substantial inflows of foreign investment. The result has been a major shift in the composition of external financing and a sustained improvement in debt and debt service indicators. Liberalization has also meant—to a degree—the increased integration of India with international capital markets. These changes have had implications for macroeconomic policy management and the use of capital controls to regulate capital inflows.

Response of capital inflows

Equity inflows have surged following the relaxation of capital account restrictions, averaging almost $4 ½ billion per year over the past three years (Chart VIII.2).8 Portfolio flows have been particularly strong, both through GDR issues and the FII route. Although such flows declined in 1995/96 due to rising interest rates abroad and weak markets at home, inflows rebounded in early 1996/97; inflows in the first five months of the financial year amounted to over $2 billion. By contrast, the response of FDI has been more gradual although on a steadily rising trend; FDI represented nearly half the equity inflows in 1995/96. Compared with other Asian countries, portfolio flows to India are relatively high, but FDI in relation to GDP remains substantially lower than elsewhere (Table VIII.1).

CHART VIII.2.
CHART VIII.2.

INDIA: NET EXTERNAL FINANCING, 1984/85 - 95/96

(Percent of GDP)

Citation: IMF Staff Country Reports 1996, 132; 10.5089/9781451818598.002.A008

Sources: Reserve Bank of India, and staff estimates.
Table VIII.1.

INDIA: Cross-Country Comparison of Measures of Openness

(In percent of GDP)

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Source: IMF World Economic Outlook database.

The success in attracting foreign investment in conjunction with policies to limit the growth in debt financing—in particular NRI deposits and ECB&has shifted dramatically the composition of external financing from debt to equity (Chart VIII.3). As a result, debt to GDP has been brought down from 40 percent to 29 percent in 1995/96, while the debt service in relation to current receipts has fallen from a peak of 35 percent to 26 percent, and will fall further once the present hump of amortization related to exceptional financing of the 1990/91 external crisis is past. Foreign investment also implies future repayments—through dividend remittance and capital repatriation—but with more favorable risk-sharing characteristics.

CHART VIII.3.
CHART VIII.3.

INDIA: COMPOSITION OF NET EXTERNAL FINANCING

(Annual average; in millions of US Dollars)

Citation: IMF Staff Country Reports 1996, 132; 10.5089/9781451818598.002.A008

Sources: Annual Reports, Reserve Bank of India; and staff estimates.

Implications for financial integration

Greater openness and freer capital movement should imply increasing financial integration of India’s financial markets with those abroad, which would contribute to a more efficient allocation of resources. Preliminary indications of such integration for money and foreign exchange markets are mixed. As would be expected in an integrated market, movements in the forward foreign exchange premium are positively related to changes in the interest rate spread (Chart VIII.4).9 However, differences in covered interest parity have still been quite large, particularly in the unsettled exchange market conditions prevailing for much of 1995/96, suggesting that money and foreign exchange market integration remains far from complete. This situation in part reflects the fact that capital controls still limit the scope for cross-border arbitrage—i.e., while a negative covered interest differential should encourage participants to fund onshore and lend offshore, capital controls slow this response. Moreover, money markets are still substantially segmented from longer term debt markets, implying limited arbitrage across the yield curve and allowing very high daily rates to persist for a period of time.

CHART VIII.4.
CHART VIII.4.

INDIA: MONEY MARKET INTEGRATION WITH INTERNATIONAL MARKETS 1/

(In percent)

Citation: IMF Staff Country Reports 1996, 132; 10.5089/9781451818598.002.A008

Source: Mecklai Financial and Commerical Services.1/ Dotted line indicates commencement of volatile exchange rate period.2/ Derived from an average of daily call money rates.

There are some signs of increasing integration of India’s equity market with other Asian markets, although again the results are far from definitive. Particularly striking has been a narrowing in the range of valuations across Asian emerging equity markets.10 The range of a sample of Asian stock exchange valuations-based on price earnings multiples—has narrowed from 40 (P/E multiples between 10 and 50) in 1991 to 20 in June 1996 (with P/E multiples ranging between 10 to 30) (Chart VIII.5). Moreover, Indian equity prices have shown increasing correlation with other Asian markets: the correlation of P/E in Indian markets to a simple average of P/E multiples in the sample of countries (excluding India), has increased from -16 percent to 89 percent. One consequence of this convergence has been that foreign equity investment can act as a stabilizing force in domestic markets, as shown during early 1996 when FII inflows surged after Indian stock prices had slumped to a cyclical low.

CHART VIII.5.

INDIA: STOCK MARKET VALUATIONS, 1993 - 96

Citation: IMF Staff Country Reports 1996, 132; 10.5089/9781451818598.002.A008

Source: International Financial Statistics, SEBI and International Finance Corporation.

Implications for macroeconomic management

Even though financial market integration is far from complete, the responsiveness of capital inflows and outflows to differences in rates of return between India and abroad means that monetary policy is less able to influence interest rates or control monetary growth independent from international developments. For example, high returns to equity investment in India in 1993/94 compared to elsewhere drew strong inflows that expanded liquidity significantly, while rising interest rates in the Unites States over late 1994 to mid-1995 reduced portfolio inflows to India and implied a need to tighten in India too. In these circumstances, exchange rate flexibility can be valuable in providing an additional degree of freedom in responding to developments.

The transition to a more open capital account also implies that the adequacy of international reserves can no longer be judged solely in terms of import coverage; reserves are also needed to provide a buffer to capital movements. This is particularly so in India where, despite controls, the scope for short-term capital movements is still significant.11 To illustrate, during the period October 1995-February 1996, in the context of volatile market conditions in the runup to general elections, the central bank intervened heavily in the foreign exchange market—both spot and forward. Intervention in January 1996 averaged about $150 million per day, while cumulative net sales of reserves from October to February amounted to $1.6 billion (RBI [1996]). Measures that would help to assess reserve adequacy against potential outflows would include the ratio of reserves to potentially liquid liabilities, including short-term NRI deposits and the cumulated stock of portfolio investment.

Implications for use of capital controls

Notwithstanding the clear trend toward liberalization of the capital account and increased use of market-based instruments, regulatory controls have continued to be used from time to time to moderate capital flows and relieve exchange rate pressures, responding to both the lack of maneuver on fiscal policy for short-term demand management and limitations on the use of other instruments (for example, the scope for open market operations is still limited by lack of depth of the government securities market and the RBI’s low stock of marketable government securities. As described earlier, to moderate the pace of capital inflows in 1993/94-1994/95 regulations governing GDR issuance were tightened, and incentives for NRI deposits reduced. By contrast, in the period August 1995 to April 1996, regulations on capital inflows were eased and avenues for short-term capital outflow were restricted in the context of downward pressure on the exchange rate.12

As capital market liberalization proceeds, it would be important to ensure a greater degree of stability in the rules established, and to reduce the recourse to capital controls and regulatory instruments as a means to regulate the flows of capital. While such methods have been effective in providing some breathing room for policy, their use suffers from several disadvantages (Johnston and Ryan [1994]). First, over time, the resulting loss of efficiency—for example from a surcharge on import financing—will tend to increase. Second, their effectiveness will be eroded as alternative routes are developed—for example, restricting hours of trading tends to create incentives to shift position-taking off-shore. Third, excessive reliance on quantitative controls works against reforms aimed at strengthening market mechanisms and sends mixed signals as to the authorities’ intent to further open and liberalize the economy.

D. Priorities for Further Liberalization

Notwithstanding progress toward opening made to date, the Indian capital account regime remains quite restrictive. Capital outflows for residents are largely prohibited, borrowing is closely regulated, and foreign investment is still subject to a range of restrictions (Box VIII.3).

The authorities have set the achievement of capital account liberalization as a medium-term goal, and are continuing to follow a graduated and sequenced approach to liberalizing the capital account. By following such an approach, time is provided to undertake further reforms in other areas that will increase the benefits of, and reduce risks associated with, free capital movements.

Reforms of the domestic banking system and domestic financial markets are crucial in this respect, to strengthen the ability of domestic intermediaries to compete in more open financial markets. As long as India’s banking system is dominated by high-cost inefficient public banks, it would be likely that liberalization of restrictions on overseas borrowing would result in a significant shift in banking intermediation offshore. There is also a need to enhance the RBI’s ability to use open market operations to maintain appropriate financial conditions in response to shifts in capital flows, including through the further development of the government securities market. Finally, a phased approach to capital account liberalization would provide time to achieve the further fiscal consolidation needed as the foundation for fully sustainable and credible macroeconomic policies. Otherwise, the economy may be subject to large swings in capital flows in response to shifting perceptions of the authorities’ objectives and policies.

INDIA: Principal Capital Account Restrictions

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Within a phased strategy, priority could continue to be given to further liberalization of equity flows. Although the share of equity has increased sharply, it still remains low relative to GDP by the standards of other Asian countries. Increasing the equity share would raise the degree of risk sharing with foreign investors, and contribute to a further lowering of debt and debt service ratios. FDI is particularly valuable, because such flows tend to be more stable (although still responding to shifts in conditions), as well as being associated with technology transfer. Actions to increase the transparency and speed of the approval process would help to encourage the buildup of such flows. Beyond measures already being considered, the Government could work toward substituting a negative for a positive list of industries—only those industries listed would be subject to FIPB approval; all others would be channeled through the automatic route.

Portfolio equity investment also has favorable risk sharing characteristics, as well as enhancing shareholder monitoring of company performance. In addition to steps already taken by the new Government, the cap of 24 percent placed on the equity share of total FII investment could be raised. In tandem, it would also be important to continue efforts to improve the transactions efficiency, and ensure strong supervision, of local equity markets to foster a sound environment for portfolio inflows.

While external debt financing must continue to play an important role, particularly in infrastructure development, a cautious approach to further liberalization of debt flows is still justified by concerns to bring down debt and debt service ratios and the need to strengthen the domestic banking system and debt markets. Overall indicative ceilings on ECB can continue to play a useful function by ensuring a close monitoring of external commercial borrowing and providing an “early warning” indicator of debt buildup. That said, it is important to ensure that flows of debt financing are efficiently used, and in this respect, minimum maturity requirements and broadening avenues for financial institutions, as well as relaxing end-use rules, would help to make ECB a more flexible avenue to source funds.

Priority should also be accorded to further liberalization of the foreign exchange market to provide greater flexibility to authorized dealers to impart liquidity and improve resiliency of foreign exchange markets, consistent with recommendations of the Sodhani Committee Report. In particular, some relaxation of capital controls allowing banks limited scope to borrow and lend abroad would encourage arbitrage and help improve market depth.

Allowing FIIs to invest in government securities on domestic markets would contribute to the deepening of liquidity and extending the range of investors in these markets, as well as serving as a bridge to greater FII investment in other local debt markets, including for infrastructure financing. Notwithstanding these structural advantages, however, liberalization of such restrictions would potential relax the framework of financial discipline on the government, by opening up a new source of funding. Given the still high fiscal deficit, it would be prudent to maintain restrictions in this area until the process of fiscal consolidation is more firmly entrenched.

References

  • Chopra, Ajai, and others (1995), India: Economic Reform and Growth, IMF Occasional Paper No. 134 (Washington: International Monetary Fund).

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  • Goldstein, Morris and Michael Mussa (1993), “The Integration of World Capital Markets,” IMF Working Paper 93/95 (Washington: International Monetary Fund).

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  • Johnston, R. Barry and Chris Ryan (1994), “The Impact of Controls on Capital Movements on the Private Capital Accounts of Countries’ Balance of Payments: Empirical Estimates and Policy Implications,” IMF Working Paper 94/78 (Washington: International Monetary Fund).

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  • Quirk, Peter J. and O. Evans (1995), Capital Account Convertibility: Review of Experience and Implications for IMF Policies, IMF Occasional Paper No. 131 (Washington: International Monetary Fund).

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  • Reserve Bank of India (1995), The Expert Group on Foreign Exchange Markets in India.

  • Reserve Bank of India (1996), Annual Report 1995/96.

1

Prepared by Peter Dattels.

2

A11 activities and transactions giving rise to or making use of foreign exchange are subject to the 1973 Foreign Exchange Regulation Act (FERA), as amended in 1993.

3

Syndicated commercial bank loans and suppliers’ credits accounted for the bulk of ECB, but India also made a growing use of other forms, especially international bond issues.

4

The FIPB has been revamped and moved from the Prime Minister’s office to the Department of Industry and is now chaired by the Industry Secretary. The FIPB chairman has full discretion to approve projects up to Rs 6 billion, double the previous ceiling.

5

FIIs include mutual funds, asset management companies, pension, and investment trusts.

6

This episode is described in more detail in Chopra et al (1995), Chapter III.

7

These rates demonstrate broad trends but are not directly comparable due to country-risk factors as well as differences in instrument features.

8

See Chopra et al (1995) for a fuller discussion of the capital inflow response.

9

The statistical correlation between these two variables over 1994-96 has been 0.60.

10

A host of other possible reasons—other than integration—could contribute to this result, such as greater coordination of macroeconomic policies, changes in institutional factors that affect price earnings ratios, etc.

11

Despite exchange controls that attempt to closely link foreign exchange access with underlying commercial transactions, considerable scope exists for short-term capital movement. For example, exporters and importers may choose to transact in forward foreign exchange market to hedge their positions fully or partially or leave positions open; they may also cancel forward contracts and rebook.

12

GDR rules were changed in November 1995 to allow issuing companies to remit funds raised through GDRs into India in anticipation of their end use; NRI deposits were encouraged by reducing reserve requirements; a surcharge on import finance of 15 percent was introduced in October 1995 and raised to 25 percent in February (subsequently removed in July 1996); a scheme of subsidized rediscounts for post shipment export credit was canceled.

India: Selected Issues
Author: International Monetary Fund
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    INDIA: EURO-DOLLAR AND FOREIGN CURRENCY DEPOSIT RATES, 1986 - 95

  • View in gallery

    INDIA: NET EXTERNAL FINANCING, 1984/85 - 95/96

    (Percent of GDP)

  • View in gallery

    INDIA: COMPOSITION OF NET EXTERNAL FINANCING

    (Annual average; in millions of US Dollars)

  • View in gallery

    INDIA: MONEY MARKET INTEGRATION WITH INTERNATIONAL MARKETS 1/

    (In percent)

  • View in gallery

    INDIA: STOCK MARKET VALUATIONS, 1993 - 96