and enhance global liquidity ( oecd, 2017 ) 2. what are the risks of free capital mobility and how are these risks managed? 5. the various currency and banking crises experienced over the last few decades have simultaneously highlighted the costs and risks of internationalization such as exposure to global shocks, credit and asset bubbles, exchange rate volatility oecd ( 2017 ), open and orderly capital movements : interventions from the 2016 oecd high - level seminar. associated with sudden exit of capital and higher refinancing risk. increased globalization has brought to the fore the vulnerability to contagion effects. while it was argued that such risks are the short - term pains needed to reap long term gains ( kaminsky and others, 2008 ) 3, there is now a wider acceptance that benefits of internationalization are not an unmixed blessing and that there is a nuanced trade off between growth and crisis risk. such awareness has led to policy focus on three fronts. a. first, that benefits of internationalization presupposes sound macroeconomic fundamentals, a well developed financial system and a sound market infrastructure, including efficient markets for funding and risk transfer. b. second, that countries need to develop appropriate tools to deal with the risks of internationalization, in particular, tools to manage the volume and composition of capital inflows and macro prudential tools. c. and third, that different types of capital flows carry different risks – some are riskier than others. the agreed hierarchy of capital flows is that foreign direct investment is the least risky, followed by equity investment, followed by debt capital. while fdi is seen to contribute to long - run growth, portfolio equity gives a shorter run boost. debt flows, while necessary, are susceptible to be volatile. understandably, the focus of capital flow regulations, and macro - prudential regulations, has been debt flows. kaminsky graciela laura and sergio l. schmukler : short - run pain, long - run gain : financial liberalization and stock market cycles, review of finance, 2008 6. capital flow measures are effective insofar as they lead to safer external liability structures, by reducing dependence on foreign borrowing and could be particularly effective during sudden - stop episodes. they work essentially by avoiding risky flows or containing short - term debt or controlling currency exposure of domestic borrowers. especially for economies where capital flows are relatively large, or the exposure of banking systems is significant, these measures

primary dealer business is exposed to interest rate cycle and adverse movements would expose their balance sheets to losses. further, geopolitical and economic risks and consequent volatility in domestic or international financial markets could potentially damage the financials. this risk is amplified for standalone pds due to small balance sheet size. it is essential that pds have strong financials and risk management capabilities. in order to protect pds from downside risks, reserve bank has allowed pds to diversify their businesses. however, only a couple of pds have diversified. bis central bankers ’ speeches the pd boards must review the corporate strategy and de - risk the business from vagaries of interest rates and financial market volatility. ( iv ) exclusivity : an issue that has been debated for some time is whether we can think of exclusivity to primary dealers. exclusivity would enable issuer to sell bonds easily and also strengthen primary dealers. however, exclusivity gives commercial advantages and this aspect must be kept in mind in a market where major investors have regulatory and statutory mandate to invest in government securities. in a situation, where some of the primary dealers are banks, exclusivity would mean that level playing field does not exist for access to slr assets. further, standalone pds with small balance sheet size and limited holding capacity need to reflect on huge demands exclusivity would impose on them, given the large size of issuances. ( b ) market making primary dealers are mandated to make markets in g - sec and provide liquidity. however, market making efforts of pds are limited to few liquid bonds. once rbi starts rolling down the htm limit, forcing churning of portfolio by banks, particularly in the public sector, pds get to play a more active role in market making. gandhi working group had recommended that one of the ways for improving liquidity is to consider allocating specific securities to each pd for market making and, if required, rotate the stock of securities among the pds at periodic intervals. this would ensure continuous availability of prices for a select group of securities. reserve bank is in consultation with government and pdai to operationalise this recommendation. initially semi - liquid securities would need to be chosen. we plan to operationalise the market making scheme in the next fiscal and expect significant improvement in liquidity. in this context, the present annual minimum turnover ratios of 5 times for government dated securities and 10 times for t