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Saturday, January 3, 2009

Banking and Finance in Slowdown Situation

With banks crumbling globally, the fact that the Indian banks - 80 % of which are state-owned - are shackled be archaic rules, function as an oligrachy, serves only 40% of the population, and lose billions from forced political patronage seems like petty misdemeanour.

New Delhi's response to crisis is well documented. But it does nothing. India alone among the major economies has done nothing meaningful to combat slowdown. So the Reserve Bank of India’s Promised review of banking in 2009 is unlikely bring the Changes the sector desperately needs … Further privatization, greater consolidation and more competition (Domestic & Foreign).

India has no long term debt market and this hinders business from building scale. As a result, economic activity is eons away from reaching its full potential and crating the 50 millions jobs over the next decade to employ the growing population.

The prospects of scoring India’s development in such circumstances appear bleak. But ironically, securing India’s growth will be easier. The distortion in the system afford opportunity for great profit. Connected individuals in regulated industries such as real estate, telecom, mining & power, have grabbed national assets at throw away prices and are making generous margins, swelling the GDP.

Need for an “International Financial Architecture” :

On October 2008 French President Nicolas Sarkozy said the world could not manage 21st century crisis with the 20th century institutions. In Russia Vladimir Putin called for “Changing the Architecture of International Finances” in September. There has been calls for putting the International Monetary Fund (IMF) in change and strengthening its mandate.

Another solution called for giving financial Stability Forum (FSF) – a forum of supervisors and central banks set up in 1999 – greater power. So despite all the sentiments about including market seeking a solution, the developed economies are going to continue to influence international monetary and economic relationship in future.

Very unlikely, our lake of real power in international organizations such as IMF, is well known; the FSF(Financial Stability Forum) membership comprises mostly European Countries, the US, Japan, and the UK, even Singapore and Hong Kong but not India & China.

So India and China and other emerging markets will have to seek their own responses to the financial crisis. Sadly these economies comprised of half of the world’s population and much of these will be the effects of what the developed economies decide. We were not the part of the problem in the first place and we are unlikely to be the part of the solution. Only we have to tolerate/shoulder the crisis.

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