Indian macroeconomic management: at the crossroads between government and markets

Werner, Richard A. (2000) Indian macroeconomic management: at the crossroads between government and markets. In, Rising to the Challenge in Asia: a Study of Financial Markets, Vol. 5 - India. Manila, Philippines. Asian Development Bank, pp. 1-58.

Record type: Book Section

Abstract

The most fundamental issue facing policymakers in India is the question of the balance between government and free markets. Throughout the postwar era, India has adopted a highly interventionist approach. But since 1991, the country has been deregulating and liberalizing the domestic economy and opening it to the world. However, India has remained cautious in its approach to liberalization, an approach vindicated in the light of comparisons with the East Asian experience. Yet, reformers in India appear determined to accelerate liberalization despite recent events in East Asia. It is appropriate to use these events as an opportunity to review the merits and demerits of India’s latest reform program. Evidence from other Asian countries, as well as from India itself, supports the maintenance of a certain degree of Government intervention that is welfare-enhancing. In particular, governments continue to play an important role in designing and implementing the institutional framework within which agents can operate. Moreover, due to informational imperfections, the credit market is a key platform for appropriate and beneficial government intervention. Therefore, governments should consider the pros and cons of giving up control over monetary policy to independent central bank

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