The Indian Economy Since 1991, 2nd Edition

13

External Sector Reforms in India

V. R. Prabhakaran Nair

13.1 Introduction

The domestic financial sector reforms generally necessitate the external sector liberalization, both the current and the capital accounts, to yield the best results. It is generally argued that domestic liberalization can lead to a reflow of the capital flight and improvements in the capital accounts, especially if accompanied by the external sector liberalization. Capital account liberalization can improve a country’s ability to tap global savings (at a lower cost than using only domestic savings); allow economic agents the freedom to choose how and where to borrow, invest or exchange assets; improve the resource allocation through increased competition for financial ...