If another global financial crisis happens in the near future, which of the following actions/policies are most likely to give some immunity to India?

1. Not depending on short-term foreign borrowings
2. Opening up to more foreign banks
3. Maintaining full capital account convertibility

Select the correct answer using the code given below:

Not depending on short-term foreign borrowings:

• The Government of India and the Reserve Bank of India (RBI) have taken several measures to ensure financial stability and to mitigate the impact of external shocks.
• This includes focusing on maintaining adequate liquidity in the system, facilitating bank credit flows, and easing financial stress to enable the normal functioning of markets.
• By ensuring a robust financial system, these measures indirectly help in reducing reliance on short-term foreign borrowings by enhancing the domestic financial ecosystem's resilience​​.
• Over-dependence on short-term debt flows makes India susceptible to volatility/contagion. Hence the need to increase the proportion of stable long-term debt.

Opening up to more foreign banks:

• The regulatory environment and financial sector policies are designed to ensure financial stability, safeguard against vulnerabilities, and promote economic well-being.
• This includes a focused approach to reduce the compliance burden and ensure a streamlined and efficient regulatory environment​​.
• RBI says global financial firms amplify crisis risks. Building large domestic banks is a better option to withstand crises. So allowing more foreign banks may not help.

Maintaining full capital account convertibility:

• The government's focus has been more on ensuring macro-economic stability, promoting growth, and implementing supply-side reforms rather than specifically on maintaining full capital account convertibility.
• The economic strategies highlighted in the government's documents include a mix of demand and supply-side measures, fiscal support, and emphasis on supply-side reforms such as deregulation of sectors, simplification of processes, and removal of legacy issues like 'retrospective tax'.
• These measures are aimed at improving the resilience of the Indian economy and are part of a broader strategy to deal with economic uncertainties​​.

Source:

• https://www.pib.gov.in/PressReleaseIframePage.aspx?PRID=1793826
• https://pib.gov.in/PressReleasePage.aspx?PRID=1615349
• https://m.rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=630