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Working Paper No. 630 | October 2010

Managing Finance in Emerging Economies

The Case of India

India has been experiencing rising inflows of overseas capital since the deregulation of its financial sector. Often looked upon as a success story among other emerging economies, the country has been subject to pitfalls and trilemmas that deserve attention. It has been officially recognized by the Governors of RBI that the financial crisis in India reflects the “dirty face” of what is described in the literature as the impossible trinity, along with the volatility in the markets that was caused by speculative capital in search of profits. However, Joseph Stiglitz observed that India’s policymakers, “particularly the Reserve Bank of India, are already doing a great job. I wish the US Federal Reserve displayed the same understanding of the role of regulation that the RBI has done, at least so far.” Recently, the United States made a path-breaking move with the launching of the recent bill on the regulation of Wall Street, which was passed by a majority of the Senate on May 20, 2010. We urge the implementation of similar laws in India and other emerging economies, especially in view of the fact that the recent moves for financial deregulation in these countries have, rather, been in the opposite direction.

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