Do emerging economies like India need capital controls to check inflows and prevent asset bubbles?
The majority feels that there is need for capital controls to regulate
inflows. Some economists feel that the monetary easing in the United
States could cause "imported" inflation in developing countries like
India. Already, Brazil and Taiwan have imposed controls.
The majority feels that there is need for capital controls to regulate inflows. Some economists feel that the monetary easing in the United States could cause "imported" inflation in developing countries like India. Already, Brazil and Taiwan have imposed controls.
Should India do the same? The Reserve Bank of India's mandarins have wisely refrained from intervening so far. India has a current account deficit that is around three per cent of GDP and needs capital flows to fund the deficit.
A sustained surge in hot money inflows will force North Block and Mint Street to reconsider their strategy, but this is unlikely to happen immediately. C. Rangarajan, Chairman of the Prime Minister's Economic Advisory Council, asserts that India can manage capital inflows up to $70 billion a year.
A sustained surge in hot money inflows will force North Block and Mint Street to reconsider their strategy, but this is unlikely to happen immediately. C. Rangarajan, Chairman of the Prime Minister's Economic Advisory Council, asserts that India can manage capital inflows up to $70 billion a year.
