Economists like Jahangir Aziz always adovocate for opening up of Indian financial sector to gloabl players in the name offinancial sector reforms in India and bringing down cost of capital.They rarely talk about opening of more bank branches in rural areasand unbanked areas.Their scheme of financial sector reforms make the Indian economy more vulnerable to global forces which are not the best care takers of the interests of India. Financial sector reform, on the international front,is a matter of balancing and not a matter of maximising.There are both pros and cons of the financial sector reforms.When they talk about the lower cost of capital, sourced from abroad,they don't consdier the cost of sudden and huge withdrawal offund from Indian capital market by the FIIs.One of the stregths of Indian economy is that here people depend more on theirearnings for their consumption requirement and less on debt (loans). This strenght is in linewith the principle of sustainable development.
Do look at the Raghuram Rajan report, where you will see an immense effort on getting finance to the firms and households that have been left out in the cold by 50 years of mistakes in financial sector policy.We've tried something for 50 years now: this is the strategy of having directed credit, bank nationalisation, blocking entry into banking, preventing foreign banks, blocking development of new products, preventing new kinds of financial services and intermediaries from springing up, etc. We have seen the results: this has failed. The vast majority of firms and households of India today are cutoff from the financial services that they need. So do we want to keep trying these failed methods or do we want to be rational, learn from mistakes, and try something new?
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