Such changes in world oil prices are an example of a supply shock, a change in the price of goods unrelated to the balance between supply and demand in the domestic market. Energy and food prices, in particular, are subject to volatile swings, due to political decisions, weather, or other developments unrelated to overall domestic economic conditions.
Nevertheless, the vulnerability of the Indian financial system or any system for that matter – to pro-cyclical and uncertain capital flows would remain. Therefore, even as our capital account is virtually open in a de facto sense for individuals and non-financial firms, further opening of the capital account particularly for the financial firms has to be dealt with in a carefully calibrated manner.