In India, drought sometimes turns to deluge. This summer the country suffered its worst monsoon since 1972, which left half its rural districts parched, followed swiftly by floods that inundated two states. In recent years India’s economic policymakers have confronted a similar phenomenon. A once-sheltered economy is now increasingly open to foreign capital, which rained down on the country in 2007, only to evaporate last year. The rains are now returning: foreigners have invested $13.8 billion in India’s stockmarkets since April, having withdrawn $8.6 billion over the same period last year. The Sensex, India’s most widely watched stockmarket index, has surged by almost 100 per cent since its March lows. On October 27th the Reserve Bank of India (RBI) held its key policy rate at 4.75 per cent, even though it is anxious about rising inflation. It is wary of attracting even more money from foreign investors, who are looking for high returns in a world of meagre yields.

India’s discomfort is widely shared. Less than a year ago policymakers in emerging economies fretted about capital flight. Their currencies and reserves were falling as foreigners tried to raise cash by ditching whatever assets they could sell. Several governments queued up for emergency loans from the IMF or a currency swap with the Federal Reserve. Now they are worried about capital flowing in the opposite direction. On October 20th Brazil imposed a 2 per cent tax on foreign purchases of equities and debt. Investors are now looking around to see who might follow suit.

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