Preference to Non-debt Creating Capital Flows:
The most important element of strategy has been the paradigm shift in the attitude towards inflow of capital from abroad. Capital inflow from abroad was treated more generally as a device to finance CAD. Now non-debt creating capital inflows, specially FDI, are being encouraged on account of their positive impact both in terms of technology and the stabilising role in external sustainability. The policy has, therefore, been to gradually liberalise capital account. ? Recognising that liberalisation of capital account needs to be treated as a continuous process, the approach is based on a careful and continuous monitoring of certain preconditions/signposts such as monetary and fiscal discipline, exchange rates, structural reforms, etc. ? Stabilisation and strengthening strict fiscal and monetary discipline to control aggregate demand. Monetary policy aimed at slowing down the growth of money supply.