Recommendations That Changed The Foreign Exchange Policy Of India
There has been a paradigm shift in the foreign exchange policy of India in the last two decades. The policy has moved from exercise of control over the foreign exchange reserves of the country to management of the foreign exchange reserves of the country in such a manner that it leads to growth in the share of the country in international trade.
During the last decade, the country started to tread on the path of economic reforms. There were phenomenal changes in the economic and monetary policies of the country and a country which was considering the mortgage of its gold reserves to Bank of England at one time, took a definite upturn and started its course to become one of the fastest growing economies of the world.
The financial experts of the country recommended that the country should start to move its foreign exchange policy from a completely government controlled one to a policy that is determined by the forces of market. The price of Rupee which were earlier kept under artificial control by the government was set free and the value was allowed to float free according to the demand and supply parameters. While a complete freedom was never asked for, a large extent of freedom was recommended.
Similarly, it was recommended that the transactions that take place from a current account should be liberalized and the conversion of rupee in these accounts should be made possible. In order to create a sustainable flow of incoming funds, it was recommended that the focus should be shifted from the debt funds to non debt funds, in simplistic terms, it was recommended that instead of relying on the loans, the country should encourage the flow of funds through incoming investments. It was also recommended that a control be exercised over the way money comes in the country through loans. Strict control measures were recommended to keep an eye on the money which came in the country as commercial loan especially the loans taken for a short term. It was also recommended that the country should move on from its dependence on the capital flow, coming form the Non resident Indians. The experts recommended that the foreign policy of India should allow the outflow of the capital from the country especially in the cases where the outflow can lead to influx of more capital. The simplest example of this case is foreign direct investment. The ability to take profits back home led to people making more investment and boosted the capital levels of the country.. Although these recommendations were made around two decades back, they have brought the foreign exchange policy of India in tune with rest of the world. Today India has fifth highest foreign exchange reserves in its coffers and is a hair's breadth away from the fourth position.
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