Financial Markets and the Economy - Intersections

  (This article appeared in Business Standard on 15th December 2025, link  https://www.business-standard.com/opinion/columns/india-needs-a-serious-debate-on-monetary-policy-and-the-impossible-trinity-125121501303_1.html  ) India needs an informed debate on when and how financial stability and currency markets should shape monetary policy A foundational principle in international economics is the “impossible trinity” or “trilemma.” This asserts that a country cannot simultaneously maintain a stable exchange rate, allow full capital mobility, and pursue an independent monetary policy.  Putting inflation first The January 2014 report of the Urjit Patel Committee shaped India’s monetary policy framework. The report recognised the trilemma and recommended giving precedence to flexible inflation targeting. It then emphasised the importance of allowing flexibility in exchange rate determination, while managing volatility through a combination of capital flow management (CFM...

  (This article was published in Business Standard as a byline on 8th December 2025. Link to the article is https://www.business-standard.com/opinion/columns/let-some-capital-flow-out-so-more-can-flow-in-why-this-matters-125120801324_1.html  ) One of the most striking shifts in India’s capital market ecosystem in recent years has been the rise of the Indian household as the country’s largest provider of risk capital. This is a structural transformation that is reshaping the engines of capital formation and influencing incentives for both issuers and global investors. While a welcome trend, it carries implications that merit informed policy debate. As the Securities and Exchange Board of India (Sebi) has highlighted, retail participation in securities markets has seen more than a threefold increase over the past five years, to over 136 million unique investors now. Reflecting this trend, net domestic demand for listed equities across primary and secondary markets, through mutua...