In terms of connections to the rest of the world, it is less clear what the right policy mix should be. Do you agree with the view that focus on simultaneously managing the exchange rate and domestic inflation while maintaining an open capital account would help in the revival of India’s economic growth? 10 marks

Mentor’s comment-
  • In the intro, mention the importance of international trade and the openness of the economy for economic growth.
  • In the intro, mention the how economy is connected to the world economy in terms of labour flows, goods and services glow and capital flows. In the next part explain how each of these flows contributed to the development of Indian economy. Flow of capital requires that domestic inflation and exchange rate are managed with the required limit while simultaneous keeping the capital account open.
  • Conclude by stating the important role RBI has to play in maintaining the balance.
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