I accept your view that unbanning of Participatory notes will not impact on capital flows into India. As you told that the other factors like the security transaction tax ,the capital gain tax (CGT) or popularly known as Tobin tax , Direct market access etc are the main hindrances of capital inflows in India.But in the current scenario the main culprit of the major capital outflows is the bankruptcy of Investment Bank in America due to U S sub prime Mortgage Crisis and at the same time the objection of House Republicans for Proposed "Bailout".The non availability of the funds compelled the other investors to pump out their world investment particularly short term and as result India has been facing net capital out flows.
Ajay,I agree with most of what you have to say -- this is an extremely well-argued piece -- and especially with the basic thesis that PNs have nothing to do with capital controls. However, I'm shocked by your assertion that "RBI was keen to push India back into being a closed economy" and that merely restricting PNs might have been a step in the way to "retard India's integration into the world economy". Perhaps this amounts to wishful thinking, but I'm hoping that you are quite mistaken here and that RBI's aversion to P-notes is rooted elsewhere. I cannot bring myself to believe that the premier financial regulator of the land has set itself in direct opposition to the prevailing, and by now established, political consensus on economic policy.
am really agree with these point these point are essential before investing.
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