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Title: Financial liberalization in India: the return of an old familiar ghost- Washington Consensus
Authors: Mohan, Deepanshu
Jindal School of International Affairs
Keywords: Capital Mobility
Capital Controls
Fiscal Consolidation
Current Account Deficit
Macroeconomic indicators
Issue Date: 31-Dec-2014
Citation: Mohan, Deepanshu. (2014). Financial liberalization in India: the return of an old familiar ghost- Washington Consensus. International Journal of Arts and Sciences, Vol 7 No 3: 355-368
Abstract: This research paper provides a macroeconomic commentary on India’s current economic position which has highlighted structural weaknesses in its macroeconomic fundamentals. In the current state of policy paralysis, a decline in the foreign direct investment has considered Indian policymakers to move slowly and steadily towards Fuller Capital Account Convertibility (FCAC) -a rudimentary feature of the Washington Consensus of the 1980s. India, in the past has acted boldly refuting IMF’s stand on FCAC and other Washington Consensus type policies by exercising certain capital controls to maintain a system of partial capital account convertibility. This was one of the main reasons why India unlike the rest of the world did not enter into a state of deep recession post the US financial meltdown. The option of FCAC being considered by the policy makers to drive more investment into the economy poses a lot of pertinent questions like- Is this necessary? If yes, then how feasible and sustainable would an investment driven growth achieved through FCAC be for any one sector. My paper looks to analyse this aspect limiting our analysis to the case of India. In times of global financial uncertainty, will the concept of FCAC or deregulating callously to boost foreign investment within certain sectors actually be feasible for India’s growing economy in the future? This is the main research question I aim to answer through the analysis done in the paper. The paper starts by giving an introduction to the concepts of capital controls, full capital account convertibility (FCAC); providing then, a lucid picture of India’s current plight in terms of the existing capital controls and the state of its macroeconomic indicators (GDP growth rates, savings rate, investment position, BOP deficit etc.). The claim on the presence of structural weaknesses in the Indian economy which should act as a deterrent on moving towards FCAC are substantiated by the analysis put forth in the paper (also drawn upon from the works of C.P. Chandrasekhar and Jayati Ghosh). At the same time, it also highlights similar studies done on other emerging market economies to draw similar conclusions from the capital account crisis faced by South East Asian economies in the past after resorting to FCAC.
ISSN: 1944-6934
Appears in Collections:JGU Research Publications

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