We believe that the benefit of capital flows hinges on pace of liberalisation of the overall economy and market efficiency and in the absence of those, unfettered capital flows could endanger financial stability. Therefore, we are guided by the principle that process of capital account liberalisation should progress in tandem with reforms in the financial sector and real sector. 6.
Nevertheless, capital flows to India remained volatile especially in the last few years. Portfolio flows dominated by Foreign Institutional Investors (FIIs) showed large swings having implications for liquidity, besides complicating monetary and exchange rate  BIS central bankers’ speeches  1  management.