Gains from decontrol

We get big gains from diligently removing restrictions, one at a time

- AJAY SHAH

The path to prosperity for India lies in becoming an open market economy, one that is deeply engaged with the world. At present, there is a maze of restrictions at the border, which hampers this engagement.

The Indian state has created intrusions — capital controls, customs procedures, sector-specific prohibitions, problems in payments, procedural overhead -- that tie down people trying to find opportunities across the border. These restrictions may be born of a desire for control or a fear of volatility. By making it difficult to transact with the world, we harm our own interests.

It is remarkable to observe how influential the removal of these restrictions can be. When we dismantle even one barrier, the economic response is often swift and substantial. A striking divergence in the economic data of 2025 offers case study of this mechanism.

The macroeconomic backdrop for India in 2025 was mixed. By October 2025, net inflows of foreign direct investment (FDI) were not looking good. Global corporations in manufacturing are exercising caution regarding long-term commitments to India despite the “China+1” narrative. The friction of doing business in the physical economy remains a deterrent.

While factories faced headwinds, Indian finance gained ground in the eyes of global strategic capital. In 2025, FDI in Indian banks and non-banking financial companies (NBFCs) surged, culminating in deals estimated at approximately $11 billion for the calendar year. Net FDI into India has been stuck for over a decade. Yet, owing to certain changes in rules, asignificant volume of capital entered financial firms in the country in a single calendar year. Such is the power of capital account decontrol. The inflow seen here in one field — $11 billion— is a strong value compared with the net FDI in India for the full 2024-25 of $29 billion.