Even within the constraints imposed by a gradualist approach, Reserve Bank and the Government of India have taken several steps that include progressive liberalization of capital flows, calibrated increase in investment limits for Foreign Institutional Investors (FIIs) in government and corporate debt, introduction of Qualified Foreign Investor (QFIs) as a separate investor class, expansion of the menu of risk management instruments, etc.
Last September, the US investment bank, Lehman Brothers, collapsed and several other major US financial institutions came under immense stress. These events transformed what was a difficult but manageable situation in global markets into a full-blown financial crisis. The consequences for the global economy have been severe.