Articles by Partha Sen

A strong financial sector is required if a nation is to reap the potential gains from trade in assets. In the financial markets, the collapse of a few institutions could lead to a collapse of the entire system. The experience of emerging economies suggests that one should approach the issue of throwing open the capital account with extreme caution.

The report of the expert group on FII inflows seeks to go over the arguments for further liberalisation of flows while drawing attention to possible pitfalls in the absence of proper regulation. While the policy prescriptions are conservative, the analysis is full of red herrings. Empirical evidence in the report is adduced in form to quotations from some new papers, and though these may be excellent, basing policy on a tiny bit of work while ignoring a great amount of other evidence is strange, to say the least.

India's capital account is too open. There are flows that can destabilise the non-financial (real) sector. There is (almost) full convertibility for inflows but restrictions on outflows. While the composition of the capital inflows has changed over the last decade, the capital account has remained in surplus. Some flows, like FDI, add to productive capacity and/or facilitate the transfer of technology and are not volatile. There are other flows that are more volatile, e g, FII flows and NRI deposits. What are the problems that such flows pose?