Abstract:
The paper defines financial liberalization, distinguishing between liberalization of domestic financial
markets and capital account convertibility. It then examines the stages and the strategy of Indian
financial reform. The Indian strategy followed a well thought out sequence whereby full capital account
liberalization was to come after deepening domestic markets, and improving government finances. One
alone is dangerous without the others. The experience of the global crisis has validated the Indian
strategy and also shown that foreign entry has benefits but cannot resolve all issues. Deepening
domestic markets and better domestic and international regulation is a necessary prerequisite for full
convertibility. The direction of future liberalization should be such as meets Indian needs of financial
inclusion, infrastructure finance, and domestic market deepening.
