Several episodes of volatile capital flows Capital flows have been a particularly contentious problem over the last decade when we had episodes of both volatile inflows and outflows with the problem often reversing direction rather abruptly. Let me sketch this out to give you a flavour of the type of challenge we face.
In the years before the global crisis – during the Great Moderation – we had capital flows far in excess of our CAD, driven by excess liquidity in the global system, search for yield by investors and the promise of India’s growth prospects (Figure – 4). The rupee appreciated steeply denting our competitiveness.