Financial Integration


Financial Integration: Its Prospects in India in relation to Global settings (A Key note address delivered at the South Indian Management Convention ay Kumarakom on 8th Nov 2014.) Dr KM George; 1) We need to be on the same wave length.. AMUL Experience. 2) Generally economics is about production and distribution of goods and services and the flow of funds. This flow of funds may be in relation normal economic activities of production of goods and services. And may not be as well. The classic case is about stock exchanges. While the national economy is not growing to any discernible levels, stock exchanges are showing phenomenal growth rates-speculative ones- BSE index now at 28,000 is almost double as compared to a few years ago. This is not the real situation based on integration with the economy. Funds from overseas is coming in huge quantity mainly due to higher returns a fair weather show up. 3) Fund management is known as fiscal management. Mostly fiancé ministry is concerned about it day in day out. Look at the recent pronouncements of Mr Arun Jaitley about selling of PSUs. 4) Quantitative easing ( open Market Operations in India) is the watchword for any prudent finance minister . In America during 2008 it was a terrible economic situation .It was a near crisis .Hence every month it is said $ 80 billion was allocated to purchase securities. Now it is getting tapered off. Some such funds reach India too. The worry is when the quantitative easing is eased out, Funds start return flow making situations in many of the recipient economies to shiver in their shoes unless they are well planned to withstand such shocks.RBI Stability Reports of Dec 2013 and June 2014 would throw more light on it. 5) Governor of RBI was saying the other day , developing countries must keep an eye over their monetary policies taking into consideration the emerging international scenario holistically. Otherwise we would end up as only policy takers not policy makers. In fact international consultations are pre requisite as we are in the era of globalisation 6) Financial markets are linked regionally and globally. 7) What is feasible at this stage for integration are: A) Information sharing B) Sharing the best practises among banks. C) Sharing the technology D) Augment the capital flow 8) After having seen the forms of FI, let us examine its benefits: a) Efficiency in capital allocation b) Better growth opportunities. d) Reduction in the cost of capital. 8) Threats of FI: 1) Corruption both petty and institutionalised Eg 2G—Coal. 2) Poor state of eco development. 3) Low level of financial development Example with PMDJY—what next to move on making a sustainable inclusive f growth? 4) Poor state of development of legal system 9) Why FI to be promoted? a) It would promote investment with risk sharing b) Better access to financial services. 10) FI is like economic alliances as seen in the form of EU;NAFTA;ASEAN; SARC;BRICS, OAU; South Africa dev Community, APEC-Asia Pacific Eco Cooperation ; etc 10) Soul searching issues in relation to FI: Challenges?? 1) Would FI augment economic growth with equality? There is no empirical evidence to prove it so far. 2) There is no time series data to support the hypothesis that FI augments flow capital from rich countries to poor on a lasting basis. 3) Data problems are many like stale – incorrect and incomplete data. 4) Market imperfections make FI a bite without teeth. 5) Legal restrictions in many countries make FI less effective. 6) Costs and benefits of FI are to be studied both at micro an dm macro levels to learn lessons. 7) FI may badly impact those economies with weak institutions and policies. 8) Stability of financial system including banking system with stable currencies. 9) One rate of taxation across the country—assuring both transparency and ease. Implementation of GST on war footing. 10) Emergence of e – commerce on a wider scale. ( $ 800 million in 2013) 11) Achieving MDGs of the UN ( of 8 at least 3 ) are directly associated with FI, namely Global Partnership for development; Gender equality & women empowerment; eradication of poverty and Hunger Let me draw this to conclusion Mr Chairman sir; FI is the need of the hour—prudence is the watch word for policy makers as no economy is an island in today’s world scenario.