ISAS Working Papers

The paper defines financial liberalisation, distinguishing between liberalisation of domestic financial markets and capital account convertibility. It then examines the stages and the strategy of Indian financial reform. The Indian strategy followed a well thought out sequence whereby full capital account liberalisation was to come after deepening domestic markets, and improving government finances. One alone is dangerous without the others. The experience of the global crisis has validated the Indian strategy and also shown that foreign entry has benefits but cannot resolve all issues. Deepening domestic markets and better domestic and international regulation is a necessary prerequisite for full convertibility. The direction of future liberalisation should be such as meets Indian needs of financial inclusion, infrastructure finance, and domestic market deepening