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Economists debate financial sector in India and China

Michael Jarvis's picture

The IMF/World Bank Annual Meetings Program of Seminars here in Singapore kicked off Saturday morning with "Opening and Reforming the Financial Sectors in China and India" - a provocative session packed with economic heavy hitters. Not surprisingly, despite probing questions neither Zhou Xiaochuan, Governor of the People's Bank of China, nor Ashok Lahiri, Chief Economic Adviser for the Indian Ministry of Finance, would commit to a timetable for greater exchange rate flexibility. Larry Summers argued that fundamental forces would drive currency appreciation and greater exchange rate flexibility in both countries.  In a call to look at economic history, Summers suggested that it is 10 times more common to abandon a fixed rate regime too late than too early.

Entering the dangerous game of economic predictions, Mr. Summers also suggested that in five years India and China's capital markets would be much more integrated with the world economy, reserve accumulation would no longer be tenable, and both countries would move towards structural current account deficits.

As moderator Stanley Fischer
noted, several panelists highlighted one issue crucial to both
countries - the need to improve credit access for rural areas and small
and medium enterprises (SMEs).  Even with rapid urbanization, over
two-thirds of the populations in both India and China still live in
rural areas and have very limited access to credit and the range of
financial services. For example, in India, the 10 largest centers
account for 80% of bank deposits and advances.  Barry Eichengreen
observed that it is important to "step up the pace of
commercialization" in the banking sector and improve credit for the
agricultural sector and SMEs in both countries. SMEs are the centers of
innovation in an economy and critical to continued business growth in
the emerging Asian giants.


Submitted by Indian on
Someone like me who worked in the Indian Financial sector few years back knows the hard fact that a very huge percentage of the Indian Financial Services Industry (even the Big guns) has grown over the past decades essentially through highly coterie based , non transparent and also highly corrupt environments. It is easy to be awed or impressed by the statistics on paper, but do we really believe that the essentialy corruption based mindset in Indian Financial sector can be changed so easily, just by showing good growth numbers or new technology based systems etc..

I strongly agree with your views. The Indian financial sector is in a process of rapid transformation. Reforms are continuing as part of the overall structural reforms aimed at improving the productivity and efficiency of the economy.

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