Liberalisation

This paper examines some of the consequences of the banking sector reforms in India which were an integral part of the liberalisation process of the economy initiated in 1992. In particular, the data show that, in the post-reform period, investment in government securities by banks has remained persistently high and there has been a significant reduction in the flow of credit (as a proportion of deposits) to the real sectors of the economy. There have also been significant changes in the flow of credit to various groups and sectors within the economy, some of which might be thought not to be in conformity with the stated social goals of the government.

An essential task prior to any analysis of the costs and benefits of globalisation is to determine exactly the extent of international integration of a specific economy. In the case of India, while there has been a significant advance in the country's external integration compared with its own past record, the advance has been modest and gradual and decidedly suffers in comparison with that of most of the other countries studied in this paper.

It is nice to receive a reply from Prabhat Patnaik to our rejoinder (EPW, May 12, 2001) to his article (‘On Fiscal Deficits and Real Interest Rates’, EPW, April 14, 2001), as it gives us an opportunity to clarify further our position. Let us state upfront that we do not agree, as he claims, with his “weak proposition that there is no theoretical justification for cutting the fiscal deficit as a means of lowering the interest rate” as it applies to the Indian situation. In India, which has a partially open economy (some capital controls) and a floating exchange rate regime (a managed float), cutting the fiscal deficit should theoretically lower the interest rate....

The upcoming WTO ministerial meeting at Doha will be considered to have been of benefit to developing countries if negotiations lead to cogent steps towards achieving a balance between liberalisation and particular development requirements. Third world countries will do well to forge broad alliances and workable coalitions.

The paranoia in some quarters over the ending of quantitative import restrictions will be proved unfounded and will die down. There will be some difficulties initially, particularly because domestic producers have been protected for so long. In the longer run competition from producers elsewhere will be beneficial for the domestic economy. This will, however, require policy-makers and other economic agents to give up their defensive attitudes and approach positively the tasks of becoming globally competitive.