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Rise of Indian economy - Groundswell or Reactionary?

Continuing the chain of thought from my previous post, I got thinking as to whether the changes in the Indian economy since 1990's have been top down and visionary or merely reactionary and ad-hoc. The conclusion which I have reached has been that they are a combination, but above all - they are based on a Groundswell from the masses.

While multiple sectors - IT, Retail, Financial Services and even manufacturing - have contributed to rise of the Indian Tiger; to illustrate my point, I would concentrate on the Financial Sector [related post].

Pre-liberalization, there were many shackles, like license raj, on the Indian financial services sector. But more gruesome were the factors of immature or absent regulatory supervision and resulting power of large investors to manipulate the free markets. The Banking sector meanwhile was dominated by PSU banks which were slow, bureaucratic and customer unfriendly.

Starting the 90s there were many top down reforms starting like Dematerialization of scrips, setting up if a fully automated National Stock Exchange (NSE), and complete eletronification of the Taxation system with the entry of PAN Cards and Tax Information Network (TIN). These were preceded by strengthening of regulators like SEBI setting up of others like IRDA. (The success of regulators in Financial Services also paved way for setting up regulators in other domains like TRAI in Telecom).

How did these reforms come into place? The strenthening up of SEBI and dematerialization of securities was a direct consequence of the scams in the Indian securities markets such as the Harshad Mehta Scam. These changes were actually demanded by the common people who lost their savings in such scams, rather than any government reforms dreamed by bureaucrats.

The next was the electronification of the stock exchanges - again, while the SEBI set up the NSE, it was the large scale movement of small investors to NSE which prompted the BSE also to modernize and match the NSE's transparent operations.

Similarly, the rise of private banks has been aided by migration of customers in hoards from the old PSU banks to private banks. As a result, PSU banks in India too have been forced to modernize themselves technologically and convert their operations from bureaucratic to commercialized.

On the outset, many of these reforms look as if they were pushed by regulators, but occasional public uproar and gradual but constant demand and preference for transparent and efficient systems has been the primary driver why these reforms have taken root in India.

While we may still seem to lament the lack of control we have on our own economic fate (ex. "I did not bring the recession - nor can I end it!") , but our intense aspiration to control our own economic / financial fate has brought about several changes which are keeping the Indian economy afloat in these recessionary times.

I believe the rise of the Indian economy today while seemingly reactionary is actually based on a groundswell of people demanding improvements in the system - which keeps me hopeful that we are not done yet and we may soon lead the world in further improvements to create the most efficient norms to govern the global Financial Systems. What do you think?


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