For all of us in India, the depths of dysfunctionality of financial policy and regulatory structure seem to be uniquely Indian. A key feature of the Percy Mistry and Raghuram Rajan reports, on the future of Indian finance, is the emphasis on reforming the role and function of government agencies such as RBI, SEBI, FMC, etc. These agencies owe their role and function to accidents of lawmaking in previous decades, at a time when conditions in India and the state of knowledge were very different when compared with what we see today.
While the Chinese have a head start on us by having done one big task of reforms (taking out banking supervision from the central bank), I just read a story about difficulties in China which sounded like it was straight out of India.
While these sorts of problems were acceptable circa 1998, they are a serious handicap for growth and stability today. Such dysfunctional behaviour did not matter so much in a largely closed $0.5 trillion economy with a 20% savings rate, but it is increasingly dangerous as we have come into a world of multi-trillion dollar economies with massive savings that need to be intermediated in an environment of substantial de facto convertibility.