ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Empirical Evidence and Policy Issues- II

Capital Account Liberalisation

The short experience with liberalisation of capital inflows documented in this paper highlights the pressures of a capital surge upon domestic monetary management. It also reveals the additional constraint of fiscal-led monetary expansion in India, which raises aggregate demand and aggravates the inflationary impact of capital inflows. These pressures complicate macroeconomic management as the only variable that can be varied in this scenario to control inflation, or adhere to a monetary target, is domestic private sector credit.

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