Of the two kinds of investment, FDI is considered stable, or ‘sticky’ capital, because it is typically here to stay; FII, on the other hand, is considered fickle, or ‘hot’ capital, because it can turn tail and run, overnight. This possibility became easy to forget in 2012, as FII inflows recorded a whopping $31 billion. This year began even more strongly, and by May-end, over $19 billion had been invested in our markets, an average run-rate of almost $4 billion a month. But in June, the taps reversed, and over $7 billion went streaming out in one month. Investors selling Indian shares and bonds needed to buy dollars (pounds, euro etc) to take their money home. This sudden extra demand for foreign exchange got added to our monthly imbalance between imports and exports, and saw the rupee tumble. Such rapid reversals are always alarming, but they have happened to importing nations throughout history, and will doubtless happen again. Which raises the obvious question—why is India so dependent on imports, and foreign capital? Well, in three words, bad economic policy. Three big ticket items illustrate the point.