153 Openness and Basic Motives of Foreign Portfolio Capital Flows into India * Nirmal Roy V P ** * The author thankfully acknowledges his MPhil supervisors Dr. K N Harilal, and Dr. Hrushikesh Mallick and Athulan Guha for their valuable comments. Earlier versions of the paper were presented at the 44th Annual Econometric Society Conference (January 3-5, 2008) held at Hyderabad, The Tenth Annual Conference on Money and Finance of the Indian Economy held in IGIDR (January 18-19,2008) the UGC-SDA conference at the Centre for Economic Studies and Planning (CESP), Jawaharlal Nehru University (January 31 -February 2 2008) and at the Institute of Economic Growth conference (February 14-15, 2008). I acknowledge the valuable comments received during these seminars in the preparation of this paper. The author also thanks the anonymous referee for the comments in the preparation of this paper. The author is solely responsible for the errors if there are any. ** Research Scholar, MIDS Review of Development & Change, Vol. XV, No.2, July-December 2010, pp.153-182 Abstract This study argues that, it is essential to understand the present openness and the basic motives underlying the fnancial fows before fully liberalizing them. In this case, an empirical analysis to understand the openness and to identify whether the foreign portfolio fows to India are driven by the capital gains motive or the income gains motive is attempted. It has been found that most of the controls on foreign portfolio fows are relaxed and these fows to India are driven primarily due to the capital gains motive and in the Indian case it is the change in stock prices. Before the analysis the econometric methodology has confrmed the long lasting relationship between the variables. Moreover, the causality checks also reveal that stock prices are causing the net foreign portfolio fows and not vice-versa. Key Words: Short-term capital fows, Foreign Portfolio Investments, Openness JEL Classifcation: F32, F36, F41 1. Introduction