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Foreign Institutional Investor (FII) Flows: Some Indian Perspectives


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Category
Articles
Authors
Publisher
Indian Institute Of Foreign Trade
Publishing Date
01-Jun-2011
volume
XLVI
Issue
1
Pages
3-23

Worldwide there has been a long debate both in academic and policy circles with regard to the Foreign Institutional Investor (FII) flows, mainly due to their volatility and pro-cyclicality, and consequent adverse impact on the monetary and macroeconomic management. Contemporaneous with the global debate, the issue has stirfaced and resurfaced in India also in tune with the magnitude of the flows both in upswing and downswing. India has seen massive flows and sudden stops and reversals. The present article is an attempt to analyze the underlying issues and put forth some policy options. Indian approach to capital flows, especially, FII flows, has stood the test of time. The Indian authorities, with a combination of sound macroeconomic policies, prudent debt management, exchange rate flexibility, effective management of the capital account, accumulation of appropriate levels of reserves as self-insurance and development of resilient domestic financial markets, have provided a sustainable response to the large and volatile capital flows.