ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Financial Sector Reforms: Realities and Myths

Does India's strategy for financial sector reform need to be reviewed in the light of what happened in the major developed countries during the global financial crisis, hitherto the role models for our reformers? The only mantra on financial sector reforms that we hear from some senior government officials and influential academicians is to dismantle all controls on cross-border capital flows, go in for market-determined exchange rates and interest rates, downsize the powers of the Reserve Bank of India to that of a pure monetary authority, transfer all the market regulation powers to the Securities and Exchange Board of India and opt for free financial markets. In all these reform packages there is often no recognition of the fact that, at the current stage of its economic development, the country needs different sets of solutions. Markets alone are not going to be the solution for all our problems. All those who talk of totally free markets do not recognise that we need broad-based industrialisation and infrastructure development to tackle poverty and that the financial sector should clearly serve as an instrument to achieve these objectives.

SPECIAL ARTICLE

Financial Sector Reforms: Realities and Myths

R H Patil

Does India’s strategy for financial sector reform need to be reviewed in the light of what happened in the major developed countries during the global financial crisis, hitherto the role models for our reformers? The only mantra on financial sector reforms that we hear from some senior government officials and influential academicians is to dismantle all controls on cross-border capital flows, go in for market-determined exchange rates and interest rates, downsize the powers of the Reserve Bank of India to that of a pure monetary authority, transfer all the market regulation powers to the Securities and Exchange Board of India and opt for free financial markets. In all these reform packages there is often no recognition of the fact that, at the current stage of its economic development, the country needs different sets of solutions. Markets alone are not going to be the solution for all our problems. All those who talk of totally free markets do not recognise that we need broad-based industrialisation and infrastructure development to tackle poverty and that the financial sector should clearly serve as an instrument to achieve these objectives.

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