The Out-Tray, On Balance
The reforms the UPA had proposed | Why the Left parties were against it | How the global crisis would have impacted these reforms | Can this step be taken now? |
Full capital account convertibility: Complete freedom to move funds in and out of India | Dilution of capital controls will encourage speculative finance to flow into the economy | Indian rupee's value would have fallen further, affecting balance of payments in a big way | Very unlikely |
Pension: Allow a proportion of all savings to go into stockmarkets; and allowing private fund managers | No need to place the savings of ordinary people into volatile stockmarkets; private fund managers need to be much more transparent | New Pension Scheme for central govt staff who joined from 2004 allows only 15% investment in equity, so limited impact | More caution about investments in equity, EPFO may even consider a reversal |
Banking: Doing away with cap on voting rights on bank boards; reducing government stake in PSU banks | This would promote the interests of private bankers against the interests of depositors and the “more stable” PSU banks | Indian banks would have been harder hit as new risky financial products would have unravelled | It’s come unstuck |
Insurance: Raising the FDI limit in insurance JVs from 26% to 49% | Tighter capital controls and “stickier” financial regulations are needed | Stability of companies would have been an issue in case the foreign player went under | Unlikely |
Stockmarket: Fewer curbs on Participatory Notes, offshore derivative instruments | This will import the financial crisis into India and make it more vulnerable to shocks in other markets | SEBI recently lifted curbs on overseas investors to stem the record sales by FIIs | Short-term measure to reverse liquidity outflow still to have an effect, but gates have been reopened |
Commodities: Allow greater trading to improve price discovery | Commodity trading hurts small farmers and only helps large producers and middlemen | Farmers unable to benefit from forward trading due to ban on some products | These reforms had hit a large air pocket on inflation concerns |
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