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Monday, June 09, 2008

Legal clarity and rule of law vs. capital controls

While India has made substantial progress towards de facto convertibility, the de jure situation has not commensurately changed. Capital account decontrol is riddled with quantitative restrictions and piecemeal measures. Fundamental foundations of the old approach have not been questioned; tinkering at the margins has been done in trying to open up.

One casualty of this piecemeal approach is legal clarity and the deeper concept of rule of law. Writing in Business Standard today, Somasekhar Sundaresan writes about the legal mess in FDI policy. This should be read alongside his piece on portfolio investment on 26 May. A short while ago, I had touched on the problem of rule of law in RBI's administration of ECB policy.


  1. Do you know what is usually the training of people who draft these acts/bills? Are these usually bureaucrats (IAS types) without formal training in law?

  2. No, the skills of the authors is not an issue. Running a complex system of capital controls is messy. This has been a problem in every country where it's been attempted, which is why well run countries generally rise above this and move to an open capital account.


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