This point was made elegantly by Diva Jain in these pages (‘India must look beyond its Atmanirbhar Bharat policy’, 20 January 2021).
So premature trade openness led to premature de-industrialization. The country liberalized external trade before its real economy had achieved a semblance of efficiency and competitiveness.
India was an enthusiastic early member of first the General Agreement on Tariffs and Trade (GATT) and then the WTO. Thanks to the institutional caution of the Reserve Bank of India, India’s financial liberalization has not caused as much damage to the real economy as it could have. India pursued trade and financial liberalization before it could restructure its real economy. There was a de facto political consensus on rolling out the red carpet for foreign financial capital. It is remarkable that this approach has not changed under different governments. In contrast, India attracted large portfolio flows because India liberalized foreign financial investment faster and also offered capital account convertibility for such investments, along with a liberal capital gains tax regime. Since financial investment options were limited in China, thanks to financial repression and extensive capital controls, FDI flowed into its real sector.
0 kommentar(er)
