Fragile Foundation : Foreign capital and growth after liberalisation

It is now well documented that the balance of payments crisis of 1991, which saw the government turning to the IMF for emergency finance, provided the grounds for a policy shift, marking a new phase in India’s relationship with foreign capital. However, as Chart 1 shows, while liberalisation did increase inflows into the country, large capital flows, which were substantially in the form of portfolio capital, were a later development. Till 1993–94 total net inflows amounted to less than a billion dollars. Subsequently, foreign investment flows rose sharply to $4.2 billion in 1993–94 and averaged about $6 billion during the second half of the 1990s.