Capital Account Liberalization: The Indian Experience

When India and China successfully withstood the contagion from the East Asian crisis in 1997, the relatively restrictive capital account regime of these two countries was generally highlighted as the savior. Unlike the pre-crisis period when capital controls were generally viewed as a taboo, policy thinking in the post-crisis period has changed dramatically, with several emerging market economies slowing down the pace and content of liberalization of capital controls with a view to limiting their vulnerability to crisis. The benefits and costs of an open capital account appear more ambiguous today than what many researchers and policymakers had believed in the pre-crisis period. In this context, the approach to capital account liberalization as adopted by India and China has become an important subject of international policy discussions.