Research Team: Dayanand Arora (External Consultant), Francis Rathinam, M. Shuheb Khan andNeha Malik (ICRIER)
Commencement: December 2009
Completion: November 2010
Funded by: Konrad-Adenauer-Stiftung, 12 months
The study, “The Impact of Present Financial Crisis on the Financial Markets of Germany, India and Japan” compares the relative capital openness of Germany, India and Japan in an attempt to draw lessons for Indian’s future capital account liberalisation. The study attempts to draw lessons for developing countries from both the historical experience of these countries and the effectiveness of their response to the challenges posed by the global meltdown in 2008-09. The report shows that the openness of developed economies has proven fatal for them. Both Germany and Japan have had high exposure to the crisis. In the case of India, the slow process of liberalisation has provided the insulation that shielded it from external shocks. Indian financial institutions had almost no exposure to the sub-prime crisis. Though the debate on financial system reform and capital controls is far from over, the report highlights that the capital account management in India is an example of the ongoing process of financial liberalisation with a very cautious attempt at ensuring institutional embeddedness at each stage of the reform process. In the light of the historical comparison undertaken, the report argues that liberalisation of the capital account without institutional embeddedness can be highly damaging. The report has been jointly published by ICRIER and KAS as a book entitled The Macroeconomic Impact of the Present Financial Crisis: A Comparative Analysis of Germany, India and Japan.