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What is Capital Flow? Why Restrictions on capital flows are growing? Are all capital flows alike?

What is Capital Flow? Why Restrictions on capital flows are growing? Are all capital flows alike?

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Answer #1

Capital flow(meaning)

  • It refers to the movement of money for the purpose of investment ,trade,business, production
  • It may be within the country or from/to outside countries
  • International capital flow may be in the form of FDI, FII , Foreign aids, Unilateral payments, Loan from foreign countries(Debt flow)
  • Capital flows are very crucial in the case of an emerging economy like India, China,..Because it helps in economic growth

Why restrictions on capital follow (Capital controls)

  • It refers to any measure taken by a government, central bank or other regulatory body to limit the flow of foreign capital.following are the reason the Government restrict the foreign capital flow
  1. The disappearance of the cottage industry
  2. contribution to pollution
  3. Culture erosion
  4. Inflation in the economy
  5. Trade deficit
  6. Exchange crisis
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