Book Review: Growth with Financial Stability—Central Banking in an Emerging EconomyMohanRakesh, Growth with Financial Stability—Central Banking in an Emerging Economy, Oxford Collected Essays, Oxford University Press, Delhi, 2011.

Gurbachan Singh
  • Margin The Journal of Applied Economic Research, August 2012, SAGE Publications
  • DOI: 10.1177/097380101200600305

Financial Stability and financial repression

What is it about?

Some countries like India ensure financial stability primarily through the policy of financial repression. This can have large long-term cumulative adverse effect.

Why is it important?

Countries like India take pride in the fact that a major financial crisis has not occurred in India. However, it is not realised that such financial stability can come at high cost. There are reasons to believe that the high price is paid by the very poor who do not get adequate support from the government that spends in one way or another on ensuring macro-financial stability.


Gurbachan Singh

I have observed in India that banks keep getting recapitalised, firms like Air India keep getting bailed out, exchange rate stability is maintained by keeping large (and costly) foreign exchange reserves, home prices do not crash because Permit Raj keeps the supply restricted, public sector stock prices do not crash because LIC and others use a 'put option'. All this is a heavy price for macro-financial stability.

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