Reflections on Indian Financial Markets

It may not be an exaggeration to say that the recent past of the Indian monetary and financial sector has been marred by a number of not so encouraging occurrences. A governor of the Reserve Bank of India (RBI) resigned abruptly citing personal reasons, select senior officials of Indian banks (both private and public) dominated the newspaper headlines on issues related to integrity, there were complaints of lack of pick-up in credit growth that accentuated in the aftermath of a major liquidity crisis in a leading non-banking financial company (NBFC), the Indian rupee experienced some roller-coaster dive. And the list could go on. It is at this juncture that this special issue on money, banking and finance—through its five papers—looks into some such issues and beyond, in an effort to decipher the sublime from the mundane.

The first paper by Y V Reddy takes a look at the central banking in India both retrospectively and prospectively. The author narrates the post-independence experience of the central bank in India in terms of four distinct phases, namely, 1950 to 1970, 1970 to 1990, 1990 to 2010, and post 2010. With the primacy of the planning process, Reddy has characterised the period from 1950 to 1970 by planned fiscal dominance, a trend further accentuated between 1970 and 1990 with an inward-looking bias in both the fiscal and the financial sectors. The period of 1990 to 2010 evidenced differences arising between the RBI and the Government of India in the areas of monetary management and external sector, despite both having partnered in crisis management and reforms of the financial sector. In the aftermath of the global financial crisis, the period since 2010, however, is broadly characterised by the rebalancing and adoption of a new framework, that is, inflation targeting. Referring to the recent stand-off between the RBI and the government, Reddy notes,