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

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INDO-US RELATIONS-Complex Manoeuvres

only adding to domestic liquidity. Up to January 21, broad money had expanded by almost 15 per cent in the current year against 13 per cent during the corresponding period last year. This rise is essentially attributable to the substantial increase in the net foreign exchange assets of the banking sector. Third, the flow of foreign exchange unrelated to exports or to services earnings may make the rupee appreciate against the dollar and thus provide an artificial boost to the rupee's strength. It is a queer situation where the external sector remains fundamentally in disequilibrium but the currency gains strength and remains undervalued only because of central bank intervention, finally, a part of the funds flowing in through the GO Rs or foreign equity issues represents a reverse flow of the earlier illegal capital flights. The process implies not an unrequited return flow of funds hut an addition to the country's international liabilities position and a recur ring liability on such foreign debt or investments. In other words, the industrialists who had stashed away funds abroad are now able to convert these into claims on Indian companies and enjoy regular incomes on these claims, thus enabling them to build up further assets abroad. It is very likely that the outflows on these accounts will soon exceed the initial inflows.

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