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TWN Global Economy Series no. 13

Financial Liberalization and the New Dynamics of Growth in India

By CP CHANDRASEKHAR

Publisher: TWN (ISBN: 978-983-2729-67-9)

Year: 2008   No. of pages: 64

ABOUT THE BOOK

Financial liberalization and special measures to attract foreign financial capital flows have triggered massive capital inflows into the Indian economy in the last five years, leading to the accumulation of large foreign exchange reserves. These developments contribute to the common perception of India as a success story of globalization. However, the liberalization process and capital surge also contain within them the seeds of economic fragility, this paper cautions.

The fund inflows are financing a bubble in the Indian stock and real estate markets, rendering them vulnerable to sharp reversals and speculative attacks which can have a ripple effect on other areas of the economy. In addition, the increasing influence of financial interests in a liberalized market forces the state to adopt a deflationary fiscal stance, with adverse consequences for output and employment growth. Besides fiscal policy, the conduct of monetary policy is also compromised by the need to manage the impact of the capital influx on the exchange rate. Finally, the institutional change associated with financial liberalization involves the dismantling of financial structures - such as directed credit to the agricultural sector and small-scale industry, and the provision of development finance - that have been crucial in stimulating broad-based economic growth.

The Indian experience with financial liberalization presented in this paper provides a compelling case for rethinking the merits of an open-door policy towards the freewheeling forces of global finance.

ABOUT THE AUTHOR

CP CHANDRASEKHAR is a Professor at the Centre for Economic Studies and Planning, Jawaharlal Nehru University, New Delhi.

Contents

1.      FINANCIAL LIBERALIZATION AND CAPITAL INFLOWS          

2.      THE ROLE OF DEBT                                                          

3.      SIGNS OF FRAGILITY

4.      FINANCIAL FLOWS AND FISCAL CONTRACTION

5.      IMPLICATIONS OF CURBING THE MONETIZED DEFICIT

6.      FINANCIAL FLOWS AND EXCHANGE RATE MANAGEMENT

7.      FOREIGN CAPITAL AND DOMESTIC INVESTMENT

8.      FINANCIAL LIBERALIZATION AND FINANCIAL STRUCTURES

9.      CONCLUSION

REFERENCES

PRICE

US$10.00 for First World countries

US$8.00 for Third World countries

RM10.00 for Malaysia

Prices are inclusive of postage costs by airmail.

How to Order the Book

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