sameeksha Current Issue : VOL 45 No. 10 March 06 - March 12, 2010    See Full Contents>>
     Article Details
    Macroeconomic Framework and Financial Sector Development: A ...   (9th August 2008)
     Benu Schneider
          The macroeconomic framework and the policy recommendations for the financial sector in the draft report of the Raghuram Rajan Committee make a case for further capital account liberalisation not because it leads to growth but because of its likely beneficial impact on financial sector development and efficiency gains. There is no evidence that this reverse sequencing works. The draft report also neglects the evidence on market failures, important among them being the pro-cyclicality of capital flows. It recommends using only the interest rate instrument for inflation targeting. This is likely to result in prohibitive interest rates. It also recommends that India follow a non-interventionist exchange rate policy instead of a managed float. This may have been a possibility if there was system-wide coherence in the international exchange rate system, but we know that is not the case.


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