In the first 40 yeas after the British left India, the country had a very restrictive policy regarding foreign exchange control in India. In the late 1980s however the forex reserves of the country fell sharply and the country had to frame the new foreign exchange policy of India.

The focus of India forex policy which was earlier focused on the preservation of India forex reserves, shifted to the management of India forex reserves. The system allowed relaxation of foreign investment policy and the new India forex policy has brought the India forex reserves from the brink of extinction to the fourth highest reserves held by a single country.