ABSTRACT
The Indian financial system has been getting increasingly integrated with global financial markets. The move towards globalization has been steady, progressive and unblemished. India proved wise in not following financial reforms the whole way and simultaneously going ahead with full convertibility of the rupee. The step by step and gradualist approach in liberalizing the financial system, which had remained regulated for nearly four and half decades, was the right, most pragmatic and rational choice. However, the policy initially attracted lot of criticism from the champions of free markets and jet speed liberalization gurus both within India and abroad. Nevertheless, the course of events in the global economy and the currency crises in Mexico, South East Asia, and Russia in the 1990s gave a firm stamp of universal approval to India’s policy of gradualism in moving towards full convertibility. These countries, after their forex crisies, had to reintroduce capital controls in order to stop the currency speculation culminating into destabilization, dragging their currencies downward. The domino effect with which the crises erupted throughout the emerging economies needed a fresh look into the philosophy of financing growth in emerging economies through free foreign private capital flows and the unregulated play of market mechanism.
