Capital market liberalisation not good for India: Stiglitz

Nobel laureate and renowned US economist, Joseph Stiglitz, criticised the recent suggestion made by US Treasury...

Nobel laureate and renowned US economist, Joseph Stiglitz, criticised the recent suggestion made by US Treasury Secretary during the latter’s visit to the country where he said that India should go in for complete capital market liberalisation.

Stiglitz was delivering a lecture on his bestseller Making Globalisation Work at Vidyut Bhavan in Salt Lake. State Finance Minister Asim Dasgupta and noted economist Professor Amiya Kumar Bagchi, were present.

Citing the example of the financial crisis Korea, Indonesia and Thailand faced 10 years ago, Stiglitz said the root cause of the crisis was that foreign money flowed out of those economies as quickly as they had flown in when things were looking up.

Stiglitz said that the only reason that India and China escaped the crisis was that they had necessary restrictions on the capital market in place. “I was a bit surprised, rather appalled, when the US Treasury Secretary advised that India ought to go in for capital market liberalisation,” said Stiglitz.

He mentioned that capital market liberalisation in India would definitely be a good opportunity for USA, but might not be such a good opportunity for India.

According to Stiglitz, the World Bank had found in a report that capital market liberalisation was bad for stability, and might even be bad for growth. “So it is doubly surprising that the US Treasury Secretary should make such a suggestion when there was no evidence to suggest that such a step would be good for India,” said Stiglitz.

The author of bestsellers like Globalisation and its Discontents and Making Globalisation Work, blamed bad financial regulation for the present crisis in the US economy and blamed USA for trying to export this to other countries as well. “Maybe to create a level playing field,” Stiglitz jokingly added.

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On special economic zones (SEZs) in India, Stiglitz said that he disapproved the notion of tax concessions to industries as then the tax burden shifted to the workers. He also suggested that the World Trade Organisation should work towards restricting such a practice. Probably caught off-guard, Dasgupta interrupted Stiglitz to announce that in a meeting of the state finance ministers, it had been decided that no tax benefits would be given to industries that cater to domestic industries to prevent a distortion in the market.

Speaking on the proposed Indo-US nuclear deal, Stiglitz said that several Americans were concerned about the issue of nuclear proliferation and did not approve of one US president picking one particular country for such a partnership. “Americans are very uncomfortable with this. The process should be multilateral,” said Stiglitz. He also described Bush as “fallible”, and said that though India might be a good choice, Bush might make other bad choices as well.

Stiglitz also suggested that it would be better if industries everywhere were given the benefits of better infrastructure, and not only the ones that are a part of SEZs.

Stiglitz criticised the Bush Government and said people in US were counting the number of days to Bush’s removal. He also directed his ire at the policies of the International Monetary Fund and the World Bank, and said that they catered to the “very special interests of advanced, industrialised countries.” “Economic globalisation has outpaced political globalisation,” said Stiglitz and added that there was a lack of political institutions to monitor globalisation effectively and democratically.