India's Capital Account Liberalization and Foreign Exchange Management

India has adopted a measured approach to capital account liberalization, complemented by the Reserve Bank of India's proactive foreign exchange management. This strategy has been crucial in protecting the economy from global disruptions.

Key Insights from the Motilal Oswal Report

• India's policy buffers have enabled it to navigate periods of global uncertainty, such as trade tensions and monetary policy divergence among major economies.
• The report emphasizes India's external sector's structural transformation over the past decade, showcasing increased resilience and stability.

Comparative Analysis: 2013 vs. FY24-FY25

• 2013 Taper Tantrum Vulnerabilities:
  • Wide Current Account Deficit (CAD)
  • Limited foreign exchange reserves
  • Heavy reliance on volatile capital flows
• FY24-FY25 Landscape:
  • Low and manageable CAD at 0.7% and 0.6% of GDP
  • Record high foreign exchange reserves
  • Shift in exports towards high-value, less tariff-sensitive services

Current Resilience and Stability

• India's external sector shows marked resilience and macroeconomic stability in FY24 and FY25 despite global tariff uncertainty and capital market stress.
• The Indian rupee remains stable amidst both advanced and emerging markets, reflecting investor confidence in India’s policies.

Strengthening of External Buffers

• Since the 2013 taper tantrum, India's external buffers have significantly strengthened.
• As of May 2025, reserves have more than doubled to USD 691 billion.

Strategic Economic Management

• India's focus on export diversification and prudent financial management has been pivotal in maintaining economic strength during uncertain global conditions.