http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2443262
Independent
Indian Institute of Management (IIMB), Bangalore
May 29, 2014
IIM Bangalore Research Paper No. 462
Abstract:
Number of Pages in PDF File: 30
SSRN-id2443262.pdf
India's Financial System & Architecture 2014: Fault Lines Part Deux
Gitanjali Swamy
Independent
R. Vaidyanathan
Indian Institute of Management (IIMB), Bangalore
May 29, 2014
IIM Bangalore Research Paper No. 462
Abstract:
This paper examines the current Indian economic crisis in the context of the Indian financial fiscal and monetary policy and identifies critical imperatives for recovery and renewal. We first present an analysis of major economic indicators and assess the likelihood of various economic crisis outcomes. The outcomes examined range from continued stagflation, to sovereign default, to simple fiscal and monetary crisis, to cascading banking and financial sector crisis and finally to an extreme tri-lemma type catastrophic failure. We next present summarized stakeholder solutions on actionable imperatives for crisis avoidance, economic recovery and then long term progress. The solutions are categorized as critical policy initiatives that first review and restructure with the intent to reduce inefficiency and eliminate corruption, then focus on revenue and better recognition to create new inflows and track existing flows correctly and finally look for policy actions to revive the economy to create centers for excellence and long term growth. This paper is designed to be the first in a series of papers and sets the broader context. Successive work will delve more into the details of each solution area as well elaborate on additional areas for solutions.
Number of Pages in PDF File: 30
Citation:
Swamy, Gitanjali and Vaidyanathan, R., India's Financial System & Architecture 2014: Fault Lines Part Deux (May 29, 2014). IIM Bangalore Research Paper No. 462. Available at SSRN: http://ssrn.com/abstract=2443262SSRN-id2443262.pdf
Contact Information
Gitanjali Swamy | |
Ramamurthy Vaidyanathan (Contact Author) |
VI. Conclusion
In examining all the macro-economic and fiscal
variables, we are forced to conclude that India is at a
very high risk of a financial crisis. This situation did
not develop overnight but is the result of 5-10 years
of fiscal mis-management, mis-appropriation,
coupled with an incomplete financial architecture
and system that is not delivering capital efficiently
where it is needed as well as most likely to provide
risk-appropriate returns. Having articulated the need
for evolution towards a more developed architecture
and system, it is also critical to note that a blind
imposition of top-down western capitalism has not
and will not work in the Indian context, with the
caveat that the socialistic approach has not worked
either in the Indian situation. The Indian solution is
therefore unique and requires one to thoughtfully
blend best practices to achieve a middle ground that
will take the largest democracy in the world to a
better economy.
Both immediate short term actions as well as strategic long term action is needed. If the nation
chooses to stave off the short-term crisis alone by
borrowing from abroad without putting in place
both a strategic plan for fiscal restructuring as well
as growth, it would compound the nations past
mistakes. With high probability the most likely
scenario is a sovereign default or fiscal crisis first
that in term triggers a banking crises in sector
weakened by alarmingly large non-performing
assets. We see this picture in numerous fiscal,
monetary and social indicators and we must
acknowledge this message. But we also note with
optimism that there are solutions that can be
implemented and the task of the new government is
to demonstrate uncharacteristic strength and
leadership required to go forward towards a positive
future by taking strong, correct, decisive action.
This paper merely covers the first step in this
assessment and actions path. Future work will delve
deeper into individual areas and develop more
detailed action items and roadmaps to the future in
individual areas detailed in this work.