Publication

This working paper discusses arguments for and against capital account convertibility (CAC) and applies them to the case of India. The paper explores theoretically the impact of CAC on financial stability, outlines its macroeconomic effects on the real economy and delineates the state of CAC liberalization in India. Subsequently, the paper considers measures for coping with capital inflows. The paper argues that several of the theoretical claims underlying the CAC policy are flawed and that the empirical case is not reassuring either.