Our comrades appear to have saved the day for capitalism in India. The bankruptcy of Lehman Brothers, the near collapse of insurance giant AIG and fears of more US financial firms going under will no doubt leave many Indians in pain, but the impact here would be anything but devastating.
The Indian economy may slow down a bit more than was expected earlier, but it would still remain on course to post a respectable 7-7.5 per cent growth, if not more. The stock market would face the heat, while the financial system might get a dent here and there. There could be some stray acts of desperation by people whose fortunes are more tied than others to the upheavals in the US. But on the whole, India is somewhat resilient, among its peers, to this fast-deteriorating global contagion. But who should get the credit?
Seeking to soothe growing concerns over the US crisis, Finance Minister P Chidambaram on Thursday said, “there is no cause for any alarm” as the country’s banking system is “reasonably insulated”. True, Indian banks, barring a few, have little exposure to such assets that would make them vulnerable to the crisis. Also, the biggest shield that India has is the lack of full capital account convertibility, which means that Indian laws place several curbs on cross-border capital flows.
It’s the same policy dispensation that helped India tide over the 1997-98 Asian financial crisis that wreaked havoc in our neighbouring countries.
In a lighter vein, a top bureaucrat had then said, “In this country money can’t move faster than our files and the Indian bureaucracy moves the files rather slow. So, thank us.” Cut to 2008, Chidambaram should be thanking the UPA’s erstwhile Left allies, whose opposition forced authorities to drop plans to bring in a legislation that will allow dilution of government equity in public sector banks to 33 per cent. Instead, the proposed amendments to the Banking Regulation Act now peg the minimum government holding at 51 per cent.
Also, minus the leftists, the UPA government could have moved much faster in opening up the financial sector, with measures that some believe would help accelerate the growth process. But then, one can’t be sure of the cushion that we have in the face of the latest onslaught on the global financial market.