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Foreign Currency Borrowing by Indian Firms: Toward a New Policy Framework

Ila Patnaik (), Ajay Shah () and Nirvikar Singh ()

India Policy Forum, 2016, vol. 12, issue 1, 139-186

Abstract: India has a complex multidimensional system of capital controls for foreign currency borrowing by firms. In this paper, we summarize existing regulations, review the outcomes, and discuss areas of concern and recent policy changes. Unhedged foreign currency exposure for firms, the complexity and uncertainty in the policy framework as it has evolved, and questions about regulation-making processes are highlighted. In an emerging economy with a managed exchange rate and incomplete markets, foreign currency borrowing poses systemic risks when left unhedged by large firms that constitute a significant part of the gross domestic product. We identify policy directions to help address these concerns.

Keywords: Capital Controls; External Debt; Market Failure (search for similar items in EconPapers)
JEL-codes: D6 F3 G1 (search for similar items in EconPapers)
Date: 2016
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