ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Current Account Fallout of FDI in Post-Reform India

Evidence from Manufacturing Sector

Examining trends of foreign exchange use of a consistent sample of foreign affiliated manufacturing firms over the post-reform years, it is found that these firms have a tendency to cause net foreign currency losses at the aggregate level, as well as at the firm level. A shift in preference for outflows through finished goods imports and intangible transaction payments is noted. The firm-level expense intensity has risen for different routes as well, while the export intensity did not vary significantly over the period. The propensity towards foreign exchange use was dissimilar in various ways for comparable local firms. Such patterns raise serious concerns regarding the impact of foreign direct investment on current account of India's balance of payment in direct and possibly shielded ways.

I would like to thank Jayati Ghosh for her valuable comments and suggestions on an earlier draft of the paper. Also thanks to the faculty at ISID for their suggestions on certain aspects of the paper. The anonymous referee is acknowledged for feedback on an earlier draft. I remain solely responsible for any errors that may have remained. A different version of the paper is being published (forthcoming) as a working paper at ISID.

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