Score:
9.5/15
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GS3
Economy
15 marks
India has recently undertaken major reforms to liberalise foreign participation in equity and government securities markets. Discuss the significance of these reforms in attracting long-term foreign capital. Also examine the potential risks associated with greater foreign portfolio investment in the Indian economy.
Student’s Answer
Evaluation by SuperKalam
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India has recently undertaken significant reforms to liberalise foreign participation in financial markets, including allowing greater access for foreign individuals in equity markets, expanding the Fully Accessible Route (FAR) for Government Securities (G-Secs), and providing tax exemptions on certain sovereign debt instruments. These measures aim to attract stable long-term foreign capital and integrate India with global financial markets.
India has recently undertaken significant reforms to liberalise foreign participation in financial markets, including allowing greater access for foreign individuals in equity markets, expanding the Fully Accessible Route (FAR) for Government Securities (G-Secs), and providing tax exemptions on certain sovereign debt instruments. These measures aim to attract stable long-term foreign capital and integrate India with global financial markets.
Significance of the Reforms:
Significance of the Reforms:
Potential risks of greater FPI participation
Potential risks of greater FPI participation
Conclusion
While liberalisation can attract long-term capital, deepen markets, improve liquidity and lower borrowing costs, risks from capital flight, exchange-rate volatility, and external shock remain.
Therefore, investment caps, prudent macroeconomic management, adequate forex reserves, and strong RBI - SEBI regulatory oversight must act as safeguards to ensure that foreign portfolio investment contribute to stable and sustainable economic growth.
Conclusion
While liberalisation can attract long-term capital, deepen markets, improve liquidity and lower borrowing costs, risks from capital flight, exchange-rate volatility, and external shock remain.
Therefore, investment caps, prudent macroeconomic management, adequate forex reserves, and strong RBI - SEBI regulatory oversight must act as safeguards to ensure that foreign portfolio investment contribute to stable and sustainable economic growth.
Your answer demonstrates solid understanding of FPI liberalization with good coverage of both benefits and risks. The structure is logical and you've addressed the core demands well. However, adding specific reform details, quantitative data, and historical examples would significantly strengthen your response and make it more compelling for UPSC evaluation.
India has recently undertaken significant reforms to liberalise foreign participation in financial markets, including allowing greater access for foreign individuals in equity markets, expanding the Fully Accessible Route (FAR) for Government Securities (G-Secs), and providing tax exemptions on certain sovereign debt instruments. These measures aim to attract stable long-term foreign capital and integrate India with global financial markets.
India has recently undertaken significant reforms to liberalise foreign participation in financial markets, including allowing greater access for foreign individuals in equity markets, expanding the Fully Accessible Route (FAR) for Government Securities (G-Secs), and providing tax exemptions on certain sovereign debt instruments. These measures aim to attract stable long-term foreign capital and integrate India with global financial markets.
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