1. Control has two parts:
   • Imposing a control
     
   • Enforcing the control
2. Control works by various means:
   • Respect and understanding
     
   • Fear
3. Capital controls are not like other instruments.
4. No finite tools of capital controls.

1. Many variations across countries:
   • Price-based controls
     
   • Quantity-based controls
     
   • Administrative controls
     
   • Complete prohibitions to complete freedom.
2. India has all of the above.

Depends on:

1. What instruments/ tools are used.
2. Complexity of mechanisms.
3. Do people understand the control?
4. How well does the state enforce them?

1. India has permanent administrative framework for capital controls.
   
2. Limited success (Patnaik and Shah, 2012).
   • Capital controls imposed in 2006 had limited impact on capital inflows in 2007-08.
   • Restrictive measures had at best, limited, temporary effectiveness.
     
3. Probable reasons:
   • Complicated/ fragmented architecture
     
   • Complicated mechanisms
   • Low capacity

1. Multiple agencies
   • India has MoF, RBI, SEBI, DIPP, FIPB, CBDT, PFRDA, IRDA
   • UK: Department of Business, Innovation and Skills, Home Office and Treasury
     
   • USA: Department of Commerce, Department of Treasury and Department of State
     
   • S. Korea: Ministry of Knowledge Economy and Ministry of Strategy and Finance

1. Multiple laws and instruments
   • FEMA (Act, regulations, circulars)
   • Govt. notifications
     
   • FDI Policy/ DIPP Press Releases
   • Other laws (Insurance Act)
     
   • FIPB - ?

1. Lack of clarity/ certainty in objectives:
   • No explicit objective statement
     
   • Usually, ostensibly for macroeconomic stability and national security.
     
   • S. Korea: Defined "emergency situations" under (Foreign Exchange Transactions Act).
   • USA, UK: Public interest and national security.

1. Sometimes, protectionism: FDI in multi-brand retail.

2. Can also be indirect: control restrictions on foreign investors (insurance, civil aviation).

3. Uncertainty in approval process
   • ECB regulations have both categories for end-use restrictions (permitted and not-permitted). Sometimes, people fall through the cracks.

1. Lack of appellate mechanisms

2. Consequences
   • No discipline
   • Uncertainty
     
   • Arbitrariness

1. Instruments of control inseparable from the imposition of controls.
2. Many actions may violate basic rule-of-law principles.
3. Used as a tool of protectionism in many sectors, rather than macroecomic stability and national security.
   
4. Complicated tools, complicated regulatory architectures, low state capacity –
   • create incentives for arbitrage
   • create inefficiencies in state capacity
   • there is no respect, or fear.
5. We need to study these in detail.

EMs more than developed countries, require simple mechanisms and clarity of objectives.