India’s New Capital Restrictions : What Are They, Why Were They Created, and Have They Been Effective?

In mid and late 2007, India enacted a set of three capital controls to reduce the volume of capital inflows entering India, end the appreciation of the rupee, discourage further loan and portfolio inflows, increase the maturity of debt inflows, and reduce volatility, turnover, and speculation on the Mumbai exchange. This paper examines the effectiveness of these controls from a historical, empirical, and theoretical viewpoint. Its results show that India’s new capital controls did little to change the inherent issues India experienced as a result of the recent influx of capital because (1) several of the goals of India’s “targeted” controls were unattainable; (2) even among the goals seen by scholars as achievable, India’s capital controls were only effective in de jure terms and made very little impact on the de facto situation experienced by the Indian economy; and (3) due to the “targeted” nature of India’s new controls, they were too limited in scope to hit their “moving targets.”