Werner, Richard A.
Indian macroeconomic management: at the crossroads between government and markets
Rising to the Challenge in Asia: a Study of Financial Markets, Vol. 5 - India.
Asian Development Bank
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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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