When there are external or internal shocks, part of the load is borne by a flexible exchange rate. When the exchange rate does not adjust, a bigger burden of adjustment is placed on stock prices, real estate prices, and firm fundamentals. The dollar/rupee has become significantly more controlled from late 2022. This shapes our understanding of how future shocks will play out.
The Indian state has hindered cross-border activities from the time of the Second World War. A wide range of people, from economists to income-tax officers, have made autarky the baseline. When capital controls started getting eased in the early 1990s, the primal fear of many was captured in the question: "Inflows are fine, but what will happen if all foreign institutional investors (FIIs) sell their shares one day and run away?" Neither Indians nor FIIs are a single monolithic group that act in unison. There are thousands of traders on the market, and in any one minute, many are selling and many are buying. So we should not see FIIs as monolithic. When bad news unfolds, whether in India or outside, stock prices or real estate prices go down. This decline of asset prices attracts buyers. It has taken years for the economics community to gradually gain confidence on these questions, to shed its fear of foreigners suddenly exiting their investments one day.
And then, there is the exchange rate. Suppose there is net selling of Indian assets by foreigners.
هذه القصة مأخوذة من طبعة May 13, 2024 من Business Standard.
ابدأ النسخة التجريبية المجانية من Magzter GOLD لمدة 7 أيام للوصول إلى آلاف القصص المتميزة المنسقة وأكثر من 8500 مجلة وصحيفة.
بالفعل مشترك ? تسجيل الدخول
هذه القصة مأخوذة من طبعة May 13, 2024 من Business Standard.
ابدأ النسخة التجريبية المجانية من Magzter GOLD لمدة 7 أيام للوصول إلى آلاف القصص المتميزة المنسقة وأكثر من 8500 مجلة وصحيفة.
بالفعل مشترك? تسجيل الدخول
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