Calibrated Financial Liberalisation in India: Has it Served the Country?

Abstract

The policymaker devising a financial Liberalization program is often faced with a choice of cold-turkey approach versus the gradualism approach. While it is not a zero-one choice, economy-specific discussions of economic Liberalization in general and financial Liberalization in particular start with a priori. Depending on the ideological location of the exponent, the pace of Liberalization is frequently labelled “fast” and “slow”. This chapter argues that such branding of the pace of Liberalization suffers from an inherent over-simplification and that economy-specific contexts need to be appreciated before pronouncing any value judgement about the pace of reform. At the risk of repeating a cliché, the analogy could be one of driving a car where depending on the road condition, the driver needs to zero in on an optimal application of the gas paddle vis-à-vis brakes. To say that driving was slow or fast without any reference to the road condition is intrinsically misleading. Without trivialising the analogy, this chapter presents an analytical account of the financial Liberalization in India.