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Working Papers Series

I n d o - F r e n c hP r o g r a m m ef r a n c o - i n d i e n

Some Aspects of External Dimensions ofIndian Economy in the Age of Globalisation

Byasdeb Dasgupta

N30 | april 2013

External dimensions o Indian economy in the age oglobalisation are viewed in this paper in terms o una-bated opening up o the economy with respect to bothtrade and oreign capital ows. Tis paper empiricallyshows that with more opening up o the economy thereis more and more transer o nancial resources abroadrom the Indian economy. So opening up throughneoliberal globalisation is a ploy o global capitalismto extract super duper surplus rom India. Analyti-cally also the paper makes an attempt to negate therecent policy reorms (as is imminent in allowing FDIin multi-brand retail, aviations and insurance and inrelentless eorts o the Government in slashing downscal decit) as anti-growth and more attuned to theinterests o global nance and capital.

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Some Aspects of External Dimensions ofIndian Economy in the Age of Globalisation

Byasdeb Dasgupta

April 2013

The authorDocteur en conomie de lUniversit Jawaharlal Nehru University, New Delhi, Inde, Byasdeb Dasguptaconsace sa thse de doctorat (1996) un sujet relati aux problmes des politiques gestion de la dette.Actuellement Proesseur Associ lUniversit de Kalyani, West Bengal, il a dirig le DpartementdEconomie de cette Universit indienne de 2008 2010.

Parmi ses nombreuses publications, gurent les ouvrages suivants: Unreedom and Waged Work - Labour inIndian Manuacturing Industry(avec Sunanda Sen), Sage, New Delhi, 2009 ; Globalization, Foreign Capi-tal and Development(avec Satanu Bhattacharya, Bishakha Ghosh et Archita Ghosh), Regal Publications,

New Delhi, 2010 ;Non-Mainstream Dimensions o Global Political Economy: Finance and Labour - Essaysin Honnour o Sunanda Sen , Routledge, Londres, 2013. Deux ouvrages sont paratre en 2013 :ExternalDimensions o an Emerging Economy: India, Routledge, etNeoliberal Globalization, Global Capitalism andInclusive Develpment: Teorizing Indias Economic ransition (avec Anjan Chakrabarti et Anup Dhar),Cambridge University Press.

About the textByasdeb Dasgupta a t invit par la FMSH sjourner en France comme Directeur dtude associ(DEA) du 15 octobre au 15 novembre 2012. Il avait eectu un premier sjour de DEA linvitationde la FMSH en novembre 2010.

Citing this documentByasdeb Dasgupta, Some Aspects o External Dimensions o Indian Economy in the Age o Globalisation,FMSH-WP-2013-30, april 2013.

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AbstractExternal dimensions o Indian economy in the age o globalisation are viewed in this paper in terms ounabated opening up o the economy with respect to both trade and oreign capital ows. Tis paperempirically shows that with more opening up o the economy there is more and more transer o nan-cial resources abroad rom the Indian economy. So opening up through neoliberal globalisation is a

ploy o global capitalism to extract super duper surplus rom India. Analytically also the paper makesan attempt to negate the recent policy reorms (as is imminent in allowing FDI in multi-brand retail,aviations and insurance and in relentless eorts o the Government in slashing down scal decit) asanti-growth and more attuned to the interests o global nance and capital.

Keywords

globalisation, India, Indian economy, global capitalism, economic opening up

Aspects des dimensions extrieures de lconomieindienne lge de la globalisation

RsumLes dimensions extrieures de lconomie indienne lheure de la mondialisation sont analyses dansle cadre de louverture continue de lconomie dans le domaine des changes commerciaux et des uxde capitaux. Cette tude montre quavec cette ouverture, les transerts de ressources nancires de lco-nomie indienne ltranger ne cessent de crotre. La mondialisation librale est ainsi une manire pourle capitalisme global dextraire un surplus de lInde. Lanalyse indique galement que la politique derorme du gouvernement indien (illustre par louverture des secteurs de la grande distribution, dutransport arien et de lassurance aux capitaux trangers ainsi que par leort mis sur la rduction dudcit scal) ne sert pas la croissance mais plutt les intrts de la nance globale et du capital.

Mots-clsglobalisation, Inde, conomie indienne, capitalisme global, ouverture conomique

Sommaire

Section 1: Degree of Openness of the Indian Economy 4

Section 2: Some Features of Indias Balance of Payments in thePost-Reform Period 9

Section 3: Foreign Capital Flows in Indiaduring the Reform Period 15

Section 4: Net Transfers of Financial Resourcesfrom India during the Reform Period 17

Section 5: Some Concern with Economic Reforms in India 19

Conclusion 21

References 21


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In this paper we will make an attempt toexplore how the external dimensions oIndian economy has changed over timesince the inception o economic liberalisa-

tion programme and its implications on the eco-nomy in terms o global capitalism and nancia-lization. Te process o globalisation has its denton multiple acets o external links o an economy.So, external dimension o an economy does notreer to only the trade links. It also includes thelinks that the economy has with the global interms o oreign capital ows. Hence, the ques-tion how ar an economy is open due to globali-sation will remain partial i it is viewed rom thetrade angle only. One has to, at least, bring intoore the oreign capital ows angle into it. Wewill use both the approach in this paper to mea-

sure degree o Indian economy in the globalisa-tion period, and also make a comparison betweenthem.

Indian economy is, o late, is regarded as one ohigh perorming emerging economy. Along withChina India is the country which is experiencinghigh growth rates when the entire world is ree-ling under deep economic recession. China andIndia registered 9.2% and 7.4% growth rates res-pectively in the year 2011 while the growth rateo the advanced countries taken together wasonly 1.6% with USA growing at the rate o 1.8%,European Union at 1.6% and with Japan expe-riencing negative growth o -0.9%.1

Te big story o the last decade or India hasbeen its arrival on the global scene. Te Indianeconomy has broken ree o the low-growthtrap rom the early 1980s. By the mid-1990s,ollowing economic reorms o 1991-3, Indiabegan to appear as a player o some signi-cance in the global economy. Ten, ollowing

the Asian crisis o the late 1990s, and romthe rst years o the rst decade o the 21 stcentury there was no looking back. Indias ex-ports began to climb, its oreign exchange re-serves, which or decades had hovered around5 billion dollars, rose exponentially ater theeconomic reorms and in little more than adecade had risen to 300 billion dollars. Indiancorporations that rarely ventured out o Indiawere suddenly investing all over the world andeven in some industrialized countries. When,in 2009, the Group o 20 (G-20) was raised to

1.Economic Survey, Government o India (2011-12).

the level o a orum or leaders, India was a si-gnicant member o this global policy group.2

Te above is the ofcial expression o theGovernment o India regarding globalised India.We need to assess the globalised economic space

o India in terms o hegemonic global capita-lism and also in terms o the ongoing process onancialization. In our rendition, globalisation oIndia is a ploy o the global capitalist and nan-cialization processes.

Te paper is organised as ollows. In Section 1we make an attempt to assess the degree o open-ness o the Indian economy during the globali-sation period ollowed by an analysis o dierentbalance o payments components since the libe-ralisation programme took o in 1991. Section 3

will take up the discussion o various dimensionso oreign capital ows in India in the post-glo-balisation period. One o the issues which remainquite signicant in the context o the recentdebate on black economy and black money inIndia is capital ight rom the country. We oerhere some estimates o net transer o nancialresources during the post-globalisation periodin Section 4. Te analysis o globalised India interms o her economic growth and its relation-ship with select external variables will be taken

up in the ollowing two sections respectively,where we will try to pose an analytical unders-tanding o the current reormist policy stance othe Government o India. Te concluding sectionsums up the major arguments o this paper.

Section 1: Degree ofOpenness of the IndianEconomyOne o the major aims o the economic reormsprogramme initiated in 1991 at the behest o theinternational lending organisations is to open upthe economy. Tis means two things (a) ope-ning up with respect to trade ows and (b) ope-ning up with respect to the oreign capital ows.Te rst opening up reers to the trade liberalisa-tion moving rom an import substitution andimport restriction regime to liberal import regimewith no or ew restrictions and relaxation o allkinds o supports hitherto given or export pro-motion like export subsidies. Te second openingup stands or doing away with all sorts o capital

2. Economic Sur vey, Government o India (2011-12); the Chapteron India and the Global Economy; pp. 337.


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and exchange controls so as to acilitate ree andunhindered ows o oreign capital in the orm oeither oreign direct investment ows (FDI) ororeign portolio investment ows (FPI) or both.Tese policy changes happened during 1991-95with trade liberalisation occurring rst ollowedby relaxation in earlier capital and exchangecontrol regime. Not only import restrictions werewithdrawn but in phases trade account and then,current account in the balance o payments wereliberalised. Simultaneously, the country movedrom the xed exchange rate regime to the exiblerate one. Even capital account got partially libe-ralised with more liberal entry o oreign capitalbeing allowed.3 Te economic reorm in India ina sense is an attempt to integrate Indian economywith the global economy, that is to say globalise

the economy. In act, the economic reorm pro-cess is dubbed as liberalisation, privatisation andglobalisation (LPG) programme. Liberalisationreers to the removal o state control and regu-lations and state interventions in the ree playo market mechanism. Privatisation stands orwithdrawal o the direct productive activities othe government by selling the public sector orstate-owned enterprises to the private entrepre-neurs4, and globalisation signies economic inte-gration o the domestic economy with the global

economy which in other words means more andmore inter-linkages between the domestic goodsand nancial markets with the global goods andnancial markets.

We provide here the idea o degree o opennesso the Indian economy in the post-globalisationperiod in terms o both trade and oreign capitalows. Degree o openness in terms o trade ows

3. ill the date there is no ull capital account convertibility. TeGovernment o India constituted two committees on Capital Ac-

count Convertibility both o which were headed by arapore andhence, they are known as arapore Committee on Capital AccountConvertibility. Te said committee recommended introduction oull capital account convertibility in phased manner. However, the

Asian Crisis in the late nineties and the global economic crisis rom2007 prevented the Government to liberalise Indias capital accountully. Tere are still certain restrictions on capital outow rom thecountry. But on capital inows rom abroad there is hardly any re-striction now.

4. Privatisation in India is known as process o disinvestment. Tereis hardly any outright sale o public sector units to the private en-trepreneurs. Rather, what has happened in India is selling o shareso the selected public sector enterprises in the stock market to thegeneral public. In many cases, even ater selling shares o the publicsector enterprises the Government retained the majority stake. In

some cases the Government altogether dissolved its ownership othe companies. So, the Indian case o privatisation is dierent romwhat has happened elsewhere particularly in Latin America and

Western Europe.

is measured here as the sum o values o importsand exports as the percentage o GDP during1970-2012. And the degree o openness in termso oreign capital ows is measured as the sum oFDI inows and outows, and FP I inows andoutows, and the external debt inows and out-ows as percentage o GDP during 1990-2012.Tey are indicated below in able 1 and able 2respectively.

As can be noted rom able 1 and Figure 1 belowIndia started opening up her economy to tradeows prior to the LPG programme in 1991. Tedegree o openness went up rom 5.38% o GDPin 1970-71 to 24.03% in 1980-81 and urther to54.81% in 1990-91 just prior to the beginning oeconomic reorm. Over the years since 1991 it

increased quite sharply rom 61.86% in 1991-92to 712.34% in 2011-12. One o the major reasonso this rapid rise in trade-related degree o open-ness was the trade liberalisation eectuated bythe WO rules and regulations since 1995. Butas we have pointed out, Indias attempt to libe-ralise her trade started well beore 1991 duringthe eighties with imports regime changed roma restrictive one to liberalised one. In act, Indiaadopted a regime o import restriction characte-rised by the policy o imports substitution romthe decade o ties immediately ater the Inde-pendence and ollowed a regime o pessimismin the initial years o Independence. Tere wassome shit in her orientation towards to exportsin the decade o seventies which is reected in theincrease o degree o openness rom a mere 5.38%in 1970-71 to 24.03% in 1980-81. From the mid-eighties there was urther change in policy stancetowards a more liberalised import regime whichgradually relaxed the restrictions on imports andincreased her degree o openness by increasingimports mainly. Te period ater 1991-92 is di-

erent rom the earlier attempt o trade libera-lisation in the mid-eighties. In this period bothimports and exports increased rapidly. And henceboth increases in exports and imports remai-ned crucial or her sharp increase in the degreeo openness in the post-globalisation period.However, despite her sharp increase in trade rela-ted degree o openness during the LPG period,her share in world trade remained quite lowalthough it has increased. Indias share in totalworld exports is a mere1.5% in 2010 compared

to Chinas share o 10.5% in the same year.5

Tis

5. Economic Survey, Government o India (2011-12).


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is a phase which marked a departure rom Indiastrade dependence with erstwhile USSR and Eas-tern European Block to the West including USA,European Union and East and South East Asiawith China becoming the largest trading partnero India. Hence, there was not only increase inIndias trade related degree o openness in the

post-globalisation period, but also there wasincrease in her dependence on West or bothimports and exports. So, integration with globaleconomy in Indian context particularly impliesintegration with the Western markets as ar asher oreign trade links are concerned.

Table 1 : Indias Degree of Openness in terms of Trade Flows (1970-2012)

Source: Database on Indian Economy available at the www.rbi.org and accessed on 26th October2012 and also, authors own calculations.

Note: Data for 2010-11 are revised and that for 2011-12 provisional.


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Increase in Indias degree o openness is mostdramatic when looked in terms o the oreigncapital ows. As can be seen rom the able 2below and also rom the Figure 2 in the year justbeore the reorm began (1990-91) it was a mere0.16% o her GDP. And in the year 1991-92when the LPG programme was initiated it wasas low as 0.24%. From less than 1% o GDP heroreign capital related degree o openness wentup to become 136.28% in 2011-12. Tis meansan increase o little more than 850 times in aspan just 20 years. Tis, in other words, impliesan increase o 42.5 times per annum during theperiod rom 1990-91 to 2011-12. Initially thisrise was due to increasing FPI ows in the direc-tion o India. But rom the latter hal o the rstdecade o the 21st century FDI ows also havestarted increasing. Linking India to global capitalows is one o the major agenda o global capi-talism, which works in terms o its various globalcircuits o capital.

In our rendition, these increasing ows o globalcapital to India are or larger and larger accumula-tion o capital rom therein. And it works through

both M-C-M and M-M circuits o capital accu-mulation a laMarx. While FDI inows representthe rst type, the FPI inows represent the secondtype. In M-C-M circuits o capital accumula-tion an initial money (M) is invested to producesome commodity (C) or the market applying alabour process and then, this commodity (C) issold in the market and etches a monetary sumM such that M > M, and the dierence betweenM and M viz. (M-M) is the surplus value. Tisis a continuous process o surplus accumulation.On the other hand, in the M-M circuit an initialamount o money (M) is put into use to gene-rate a higher sum (M) directly. Tis is an accu-mulation process where surplus value (M-M) isproduced without applying any labour processand hence, it does not involve any commodityproduction. Tis type o accumulation process isobserved in the nancial sector say, in banks orin the stock market. Essentially thereore, FDIinows rom abroad represent the monetary owsor the M-C-M circuits in India while the FPI

inows rom abroad represent the monetary owsor the M-M circuits in India.

Figure 1 : Indias Trade Related Degree of Openness (1970-2012)

Source: Database on Indian Economy as available at the www.rbi.org and accessed on 26th October2012.

Note: X Exports and M Imports.


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In India it is the FPI inows in the countrysstock market which remained more prominentthan the FDI inows in the post-reorm period.Only ater the second hal o the rst decade othe 21stcentury did FDI inows also registeredsteep rise. Tis, in other words, implies globalcapitalism in India did work or the rst one andhal decade o the LPG programme through the(M-M) circuits. And the surplus which is genera-ted through such circuits, as the recent experienceworldwide particularly in the advanced capita-list countries indicates, is mostly speculative innature with quite high rates o returns, which arerarely reaped through (M-C-M) circuits in thereal sector. o our understanding, through theprocess o globalisation viz. opening the domes-tic economy to the global capital Indian economy

also got linked with another global process viz.the process o nancialization. Te latter impliesan overwhelming presence o interest o nancein every sphere o economic lie o a nation andalso, signies the dominance over the real sectoro the economy by the nancial interests/motives.In act, to a certain extent FDI inows in Indiaremained linked with this interest indirectly.According to a Planning Commission Report,almost 52% o FDI inows in India till the year2002 were o Mergers & Acquisition (M&A)

type, which means acquisition o shares by theoreign entities in the existing domestic entities.Tis has some implication or the stock market inIndia since due to large M&A type investmentin India through FDI route share prices went upsignicantly, which reects the nancial interesto such investment.

YEARForeign Capital Related Open-

ness (in percent o GDP)

1990-91 0.16

1991-92 0.28

1992-93 1.12

1993-94 10.30

1994-95 13.02

1995-96 12.45

1996-97 18.29

1997-98 24.46

1998-99 18.72

1999-00 37.11

2000-01 18.912001-02 29.49

2002-03 26.92

2003-04 21.93

2004-05 25.81

2005-06 41.54

2006-07 100.38

2007-08 124.68

2008-09 133.15

2009-10 126.722010-11 115.24

2011-12 136.28

Table 2 : Foreign Capital RelatedOpenness of India (1990-2012)

Source: Database of Indian Economy availableat www.rbi.org and accessed on 26th October2012 and authors own calculations.

Note: Data for the year 2010-11 are reviseddata and that for 2011-12 provisional.

Figure 2

Source: Database onIndian Economy as avai-

lable at www.rbi.org andaccessed on 26th Octo-ber 2012.


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Is there any relationship between these twodegrees o openness? For the period, 1990-2012,we nd a strong positive correlation betweenthem with correlation coefcient being 0.94.Te trade related openness is less variable thanthe oreign capital related openness as the coe-cient o variation or the ormer is 0.72 com-pared to 1.04 or the latter. In other words, bothtrade-related openness and oreign capital relatedopenness moved together in the same directionmutually inuencing each other. Hence, traderelated opening up and oreign capital relatedopening up are not two separate and isolated pro-cesses. Rather, they are processes in tandem witheach other. With more trade related opening upcame the more oreign capital related openingup and vice versa. Tis is a unique eature in the

post-globalisation period which did not happenbeore.

Section 2: Some Featuresof Indias Balance ofPayments in the Post-Reform Period

In this section, we intend to take up analysis oIndias balance o payments in the post-reormperiod. able 3 below indicates the merchandisetrade balance, balance on net invisibles, currentaccount balance and capital account balance.As can be noted rom the table Indias currentaccount balance in the post-reorm period remai-ned in decit except or a short spell rom 2001-02 to 2003-04; and the magnitude o this de-cit is mostly explained by her burgeoning tradedecit. In act, current account decit is to someextent is contained by the surplus in net invisiblesaccount. Tis surplus in net invisibles is due tomainly private transer receipts in the orm omainly remittance inows.

Table 3 : Some Indicators inIndias Balance of Payments

(1990-2012)

(in US $ billion)

Year/Item

I. radebalance(A-B)

II. Invi-sibles, net

III.Currentaccount(I+II)

IV.Capitalaccount

1990-91 -539.28 -13.83 -553.17 410.76

1991-92 -123.32 71.40 -51.92 166.47

1992-93 -210.14 74.11 -136.03 113.27

1993-94 -128.99 92.13 -36.86 308.30

1994-95 -288.42 181.04 -107.38 291.83

1995-96 -350.40 168.01 -182.36 144.66

1996-97 -418.17 287.79 -130.38 322.12

1997-98 -426.96 275.55 -151.41 275.61

1998-99 -320.99 223.13 -97.85 200.16

1999-00 -414.38 305.26 -109.12 257.81

2000-01 -277.26 217.93 -59.32 189.92

2001-02 -245.29 317.34 72.06 177.112002-03 -219.96 350.52 130.56 218.93

2003-04 -294.49 596.82 302.33 372.21

2004-05 -743.70 689.20 -54.51 631.76

2005-06 -1176.96 952.43 -224.54 565.85

2006-07 -1363.63 1152.52 -211.12 1019.07

2007-08 -2212.10 1831.53 -380.59 2609.55

2008-09 -2747.25 2105.62 -641.65 80.09

2009-10 -2441.94 1653.18 -788.76 1066.46

2010-11 -2855.98 1851.19 -1004.79 1290.202011-12 -4065.77 2391.23 -1674.55 1399.63

Source: Database on Indian Economy asavailable at www.rbi.org and accessed on26th October 2012.

Note: Data for the year 2010-11 is revisedand that for 2011-12 is revised.


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As can be noted rom the above table Indiaenjoyed surplus in her capital account balanceand this surplus more than outweighed her de-cit in the current account. In the year 2008-09,the year when global crisis erupted, the surplus incapital account was quite small compared to the

other years and also, with respect to the currentaccount decit o that year implying overall de-cit in that year.

able 4 below indicates some o the relevantexternal variables as percent o GDP at

current market prices o India.

Table 4 : Selected Indicators of Indias External Sector (2006-11)

(As percent of GDP at market prices)

2006-07 2007-08 2008-09 2009-10 2010-11

1 Exports 13.6 13.4 15.2 13.4 14.8

2 Imports 20.1 20.8 25.0 22.0 22.6

3 rade Balance -6.5 -7.4 -9.7 -8.7 -7.8

4 Invisible Balance 5.5 6.1 7.5 5.9 5.0

5 Goods and ServicesBalance

-3.4 -4.2 -5.3 -6.0 -4.9

6 Current AccountBalance

-1.0 -1.3 -2.3 -2.8 -2.7

7 ECBs 1.7 1.8 0.6 0.1 0.7

8 FDI (net) 0.8 1.3 1.8 1.3 0.6

9 FPI (net) 0.7 2.2 -1.2 2.4 1.8

10 otal capital account(net)

4.7 8.6 0.5 3.8 3.7

Source: Economic Survey, Government of India (2011-12); p. 134.

Note: (1) ECBs External Commercial Borrowings

(2) Data for 2010-11 are partially revised.

From this table the ollowing conclusions canbe drawn regarding Indias external economicdimensions in recent time rom 2006-07 to2010-11:

1. During the reorm period her import inten-sity (measured as total imports as percent o

GDP) compared to her export intensity hasincreased more.

2. Te increasing trade decit is the result oher relatively more increase in imports thanexports although the latter has increasedconsiderably too but still lags behind theimports.

3. Her trade decit, which is at -7.8% o GDP,is considerably high which is largely compen-sated by her surplus in net invisible balance

so as to produce relatively smaller decit inher current account.

4. However, in recent time the current decit aspercent o her GDP is more than -2% whichis quite worrisome. In act, in recent time herimport coverage o oreign exchange reserves(in number o months) has gone down roma peak o 14.4 months in 2007-08 to 9.6months in 2010-11. Although the situationhas not reached the crisis point, given the longpersisting global recession and the increasingtrend in her import intensity this may proveto be o some concern in uture. Te situa-tion may get aggravated i rupee slides steeplyvis--vis US dollar which happened in 2012.And in uncertain and volatile global econo-mic situations this cannot be predicted aheado time. Te import scenario has worsenedor India as she relies on imports or 75% oher domestic oil demand and recently due to

(i) the political crisis in the Middle East andthe North Arican states and (ii) downward


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uctuating rupee against US dollar oil importbill has gone up signicantly.6

5. As can be noted rom the able 4, o thetwo types o global capital ows FDI andFPI, on net basis as percentage o GDP FPI

remained still the more prominent ow withshare o FDI remaining above 1% o GDPduring 2008-09 and 2009-10 came downbelow that level in 2010-11.

6. From the increasing import-intensity o Indiavis--vis her exports we eel that the globalcapital is more interested in the large domes-tic market o India which is represented bya signicant number o middle-income ear-ning people. So, in addition to selecting Indiaas a base o production the global capital

represented by the large multinational cor-porations want to sell their products in theIndian market and to reap the surplus the-rein by converting commodity (C) producedelsewhere into monetary value (M). Tis isquite similar to the trade pattern that Indiahad during the colonial period when thecolonial ruler used to treat India as marketor its nished products and source o rawmaterials. In act, i we look at the principalexports and imports o India we nd that she

imports more value-added products that sheexports, the latter including signicantly rawmaterials like iron ores.7 Tis pattern o tradeis signicantly contributing drain o nancialresources rom India with which one ndssome similarity with the colonial pattern otrade under the British Rule.

7. Finally, it can be opined that given the ove-rwhelming importance o FPI ows vis--vis the FDI ows India has been drawn intothe process o nancialization rom the very

beginning o the economic reorm process.

6. One may nd some similarity o the present situation withthe situation in 1990-91 when Indias external payments cri-sis was aggravated by the Gul War. But the situation nowhas not reached that crisis level. Te point is that in thecurrent globalised scenario Indian economy is not insula-ted rom the global actors the point quite oten missedby many. In act, Sen (1994) quite sharply highlighted thispoint the overwhelming inuence o global actors in sha-ping Indias external economic dimensions.

7. Tis is not to deny that India does not export value-addedproducts. In act, one o her principal exports is gems andjewellery. However, as ar as imports are concerned in thepost-globalisation period barring petroleum they consist ohigh value added products made in oreign economies.

Financialization in the literature is denedas the overarching presence o nance and/or nancial motives in every sphere o eco-nomic lie o a nation. Tis is in practiceound in desires o making high returns romany investment at a very short spell o timethrough speculative means. One o the bestways to do so is in the stock markets. Butnancialization is more than investment instock markets. It implies also reaping nan-cial gains or returns through the dierent cir-cuits o nance employing dierent nancialinstruments. Financialization warrants dere-gulation o nance. In India, some degreeo nancial deregulation has happened withbanking sector, capital market and insurancesector reorms. But compared to the West

(including Japan) the degree o deregulationis less. India is still to have ull capital accountconvertibility. But the nancialization as aprocess can be elt in India with shit in theorientation o the major nancial institu-tions8 and rom the growing importance othe stock markets in Indian economy. Majorpolicy decisions in the post-reorm period areguided by the ups and downs in stock mar-ket especially the downs therein, which is amajor shit in policy stance propelled by the

process o nancialization. And the health oeconomic undamentals is treated as per thetrend in stock market as reected in terms omovements o the major stock indices likeBSE Sensex and NSE Nity. We also nd thegrowing cases o nancial scams in the eco-nomy which is a recurring event in any nan-cialized economy.9

8. First o all, public sector scheduled commercial banksshares were sold to the general public at the stock marketwith the Government still retaining the majority stake. Se-condly, these banks have been asked to be more and moreprot-oriented. Earlier when these banks were nationalisedin 1969 and also in 1980 they became more social objectiveoriented. Tirdly, we nd banking businesses in India aregetting intertwined with many non-banking activities whichis what has happened in the West in the age o nanciali-zation.

9. For example, one can cite in this context the HarshadMetha scam in the stock market in the early nineties andSatyam scam in the second hal o the rst decade o the21st century.


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able 5 above indicates the position obanking capital in the capital account o thebalance o payments o India. Note that (romcolumn 8 o the table) assets net o liabilitieso the Indian banks are negative most oyears during the reorm period. O late, inact the gap between assets and liabilities haswidened. One o the major reasons or thisnegative dierence between banking assetsand liabilities is the growing NRI depositsin Indias commercial banks with reormsin the banking sector which has liberalised

such deposits. Note that these deposits aresignicantly increasing the oreign exchange

reserves o the country which in other wordsimplies that a sizeable portion o Indiasoreign exchange reserves pose liability to heras any deposit in banks is its liability. So ar sogood. NRIs have retained their condence inthe Indian economy. And interest rates thatcould be oered to them on such depositsremained quite attractive vis--vis the interestrates elsewhere in the world. However, withturn o events both in the global as well asnational space the situation may get alteredand i the NRIs start losing their condence

in the banking system o the country thesituation may endanger a crisis in uture.

Table 5 : Banking Capital in the Capital Account of Indias Balance of Payments(1990-91 to 2011-12) (in US Dollar millions)

Year

Banking

Capital

Commer-

cial Banks

Assets o

Commercial

Banks

Liabilities

o Com-

mercial

Banks

NRI

Deposits o

Commercial

Banks

Others

Assets

minus

Liabilities

NRI/

Liabilities

(in

percent)

1990-91 682 904 -364 1268 1537 -222 -1632 121.21

1991-92 567 138 229 -91 290 429 320 -318.68

1992-93 3826 2930 1073 1857 2001 896 -784 107.75

1993-94 2264 1658 -844 2502 1207 606 -3346 48.24

1994-95 -334 -626 -962 336 172 292 -1298 51.19

1995-96 763 938 -385 1322 1104 -175 -1707 83.51

1996-97 2229 2225 -870 3095 3350 4 -3965 108.24

1997-98 -893 -1260 -2195 935 1125 367 -3130 120.32

1998-99 699 -447 -1397 950 961 1146 -2347 101.161999-00 2127 2304 790 1514 1540 -177 -724 101.72

2000-01 -1961 -1882 -4174 2292 2316 -79 -6466 101.05

2001-02 2864 2660 -444 3104 2754 204 -3548 88.72

2002-03 10425 10135 5113 5022 2978 290 91 59.30

2003-04 6033 6501 789 5712 3642 -468 -4923 63.76

2004-05 3874 3979 -47 4026 -964 -105 -4073 -23.94

2005-06 1373 442 -3175 3617 2789 931 -6792 77.11

2006-07 1913 1581 -3494 5075 4321 332 -8569 85.14

2007-08 11759 12112 6894 5217 179 -353 1677 3.432008-09 -3246 -2774 -2902 128 4289 -471 -3030 3350.78

2009-10 2083 1927 1838 89 2922 157 1749 3283.15

2010-11 4962 4432 -3297 7729 3238 530 -11026 41.89

2011-12 16226 16049 -593 16641 11917 177 -17234 71.61

Source: Database on the Indian Economy as available at the www.rbi.org and accessed on 26th Octo-ber 2012 and authors own calculations.Note: NRI/Liabilities NRI deposits of banks as percent of their total liabilities. All the gures in thetable are on net basis that means the gure arrived at subtracting debit side entry from the creditside entry. Data for 2010-11 is revised and that for 2011-12 is provisional.


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Another area o concern or India in her currentaccount in the balance o payments is the netincome ows particularly net investment ows.able 6 above indicates the net income as well as

net investment ows to India during the periodrom 1990-91 to 2011-12. Note that both netincome and net investment income ows to Indiaremained negative during the reorm period. Also,barring ew years, net compensation to employeeswas negative. Tese mean on these three countsthere is ow o nancial resources rom India andthis outward ow has increased unabated overtime. Both net income and net investment owsas percent o GDP are quite high in recent timeas can be seen rom the table. Te able 7 belowindicates the correlation coefcients between netincome and net investment income as percentageo GDP with trade related degree o openness

and oreign capital related openness respectively.Note that the correlation coefcient in each caseis negative and is more than the value 0.5. So,this means with more and more degree o open-

ness measured either in terms o trade routes ororeign capital routes more and more net out-ows o income including investment incomehave taken place during the period under consi-deration. So, India is paying abroad more actorincomes than it is actually receiving. Note alsothat the values o the correlation coefcients arehigher in case o trade related degree o opennessthan in the case o oreign capital related degreeo openness. One would expect it to be other wayround. Note that we have already ound a highdegree o positive association between the twodierent degrees o openness and also, we havenoticed that trade related openness so ar is more

Table 6 : Net Income Flows in the Current Account of the Indias Balance of Pay-ments (From 1990-91 to 2011-12) (in US Dollar millions)

Year IncomeInvestment

IncomeCompensationo Employees

GDP ($) Income/GDPInvestment

Income/GDP

1990-91 -3752 -3752 0 77025.75 -4.87 -4.87

1991-92 -3829 -3829 0 60257.00 -6.35 -6.35

1992-93 -3423 -3423 0 55573.67 -6.16 -6.16

1993-94 -3270 -3270 0 48414.57 -6.75 -6.75

1994-95 -3431 -3431 0 51625.03 -6.65 -6.65

1995-96 -3205 -3205 0 53601.19 -5.98 -5.98

1996-97 -3307 -3307 0 52961.47 -6.24 -6.24

1997-98 -3520 -3459 -61 53883.75 -6.53 -6.42

1998-99 -3544 -3569 25 50593.75 -7.00 -7.05

1999-00 -3559 -3695 136 52172.00 -6.82 -7.08

2000-01 -5004 -4664 -340 52131.04 -9.60 -8.952001-02 -4206 -3844 -362 52389.86 -8.03 -7.34

2002-03 -3446 -3544 98 52895.62 -6.51 -6.70

2003-04 -4505 -3757 -748 59633.01 -7.55 -6.30

2004-05 -4979 -4095 -884 65571.35 -7.59 -6.25

2005-06 -5855 -5262 -593 73765.83 -7.94 -7.13

2006-07 -7331 -6762 -569 78671.38 -9.32 -8.60

2007-08 -5068 -4433 -635 94238.87 -5.38 -4.70

2008-09 -7110 -6626 -484 95590.98 -7.44 -6.93

2009-10 -8039 -7247 -790 93123.57 -8.63 -7.782010-11 -17310 -16398 -912 106852.40 -16.20 -15.35

2011-12 -15987 -16465 477 111468.99 -14.34 -14.77

Source: Database on Indian Economy as available at www.rbi.org and accessed on 26th October2012 and authors own calculations.Note: Data for the year 2010-11 is revised and that for the year 2011-12 is provisional. Figures areon net basis in the table.Ah

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than the oreign capital related degree o open-ness. So, it is quite natural to have high negativeassociation between net income/net investmentincome and trade related openness than betweenoreign capital-related one.

able 8 below provides the trend o net trans-ers (both ofcial as well as private) in the cur-rent account o the Indias balance o payments.Note that with liberalisation and globalisationIndian economy is gainer in terms o receivingnet transer ows rom abroad. With ofcialtransers remaining stable during the periodunder consideration, it is the net private transersto India which increased rapidly over the reormyears. Tis is due to large remittance inows bythe Indians working abroad. In act, India isthe largest recipient o remittance income romabroad at the moment. We nd very high positivedegree o association between total transers andthe two degrees o openness and also between theprivate transers and the degrees o openness ascan be seen rom able 9 below. o our unders-

tanding this is so because ater 1991 sendingmoney back home has been made much easier inIndia. And with the technological advancement

Table 7 : Correlation Matrix betweenNet Incomes with Degrees of Open-ness (From 1990-91 to 2011-12)

rade Related

Degree o

Openness

Foreign Capi-

tal Related

Degree o

Openness

Net Income/GDP -0.73 -0.58

Net Investment

Income/GDP-0.68 -0.54

Source: Authors own calculations from the data

sourced from the Database on Indian Economyavailable at www.rbi.org and accessed on 26thOctober 2012.

Table 8 : Net Transfers in the Current Account of the Indias Balance of Payments(From 1990-91 to 2011-12) (in US Dollar million)

Year ransers Ofcial ransers Private ransers GDP ($) ransers/GDP Private ransers/GDP

1990-91 2530 461 2069 77025.75 3.28 2.69

1991-92 4242 459 3783 60257.00 7.04 6.28

1992-93 4215 363 3852 55573.67 7.58 6.93

1993-94 5633 369 5264 48414.57 11.63 10.87

1994-95 8509 416 8093 51625.03 16.48 15.68

1995-96 8852 345 8507 53601.19 16.51 15.87

1996-97 12777 410 12367 52961.47 24.13 23.35

1997-98 12209 379 11830 53883.75 22.66 21.95

1998-99 10587 307 10280 50593.75 20.93 20.32

1999-00 12638 382 12256 52172.00 24.22 23.49

2000-01 13106 252 12854 52131.04 25.14 24.66

2001-02 15856 458 15398 52389.86 30.27 29.39

2002-03 16838 451 16387 52895.62 31.83 30.98

2003-04 22162 554 21608 59633.01 37.16 36.23

2004-05 20785 260 20525 65571.35 31.70 31.30

2005-06 24687 194 24493 73765.83 33.47 33.20

2006-07 30079 254 29825 78671.38 38.23 37.91

2007-08 41945 239 41706 94238.87 44.51 44.26

2008-09 44798 232 44567 95590.98 46.86 46.62

2009-10 52045 254 51791 93123.57 55.89 55.62

2010-11 53140 16 53124 106852.40 49.73 49.72

2011-12 63494 25 63469 111468.99 56.96 56.94

Source: Database on Indian Economy as available at www.rbi.org and accessed on 26th October 2012 and

authors own calculations.Note: Data for the year 2010-11 is revised and that for the year 2011-12 is provisional. Figures are on netbasis in the table.


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(inormation technology) these transers takealmost no time to reach India rom abroad. Oneo the major reasons or growing surpluses in thenet invisible accounts o the balance o paymentis this growing private transer rom abroad onnet basis. With more and more opening up, suchtransers are also growing as the values o correla-tion coefcient in able 9 indicate.

So, summing up our arguments in this section,we can assert that on various counts nancialresources are owing out o India during thereorm period. One such major source is income particularly net investment income. Similarly,the position o the banking capital in the capitalaccount o the balance o payments is characte-rised by asymmetry between assets and liabili-ties with the latter outweighing the ormer. Tisremains a matter o concern especially i a crisishits the Indian economy in uture. We oer in

this paper an estimate o net transer o nancialresources (henceorth, NR) rom India duringthe reorm period. But beore that we will providesome critical analysis o oreign capital ows inIndia during the reorm period.

Section 3: Foreign CapitalFlows in India during theReform PeriodIn this section we oer some analysis o oreign

investment ows as occurred during the reormperiod. Foreign capital to India ows in theorm o both FDI ows and FPI ows. In able

10 below we indicate the net FDI and net FPIows rom 1990-91 to 2011-12. Column (3) othe table shows the total net oreign investmentin India which is the sum o net FDI and netFPI inows. A negative sign indicates outowrom India on net basis. Te reorm period underconsideration is also marked by oreign invest-ment by India abroad which is indicated in thecolumn (6) o the table. As can be noted rom therst decade o the 21st century oreign investmentabroad peaked up and is growing. ill 2006-07net FPI inows dominated over net FDI inows.Ater that FDI inows (net) surpassed the FPIinows (net). In act, in 2008-09 net FPI inowsto India were negative signiying FPI outowson net basis rom India. Tis is the year whenthe global crisis erupted and oreign investors

withdrew their investments rom dierent stockmarkets to take the money back home.

Net FPI ows to India remained more volatilethan net FDI ows during the period underconsideration as the coefcient o variation o netFPI ows was 1.55 which is higher than that othe net FDI ows (1.25). In general, FPI ows aremore volatile than the FDI ows. FPI ows aresubject to whims and ancies o (a) the stock mar-kets o the host countries, (b) whims and ancieso the global stock markets, and (c) above all, theglobal economic conditions. With adverse condi-tions resulting rom any one o these three actorsoreign portolio investors take no time to with-draw their investments rom the host countriesstock markets. Tis has happened in India duringthe Asian crisis and as well as during the globalcrisis which suraced during the second hal othe rst decade o the 21st century.

able 11 below indicates the net FDI and netFPI ows as percent o GDP. It can be seen rom

the table that both FDI and FPI ows have regis-tered continuously growing percentages o GDPduring the period under consideration startingrom a very low gure in 1991-92. Also alongwith FDI and FPI, oreign investment abroadrom India as percentage o GDP has increasedsubstantially rom 1990-91 to 2011-12. Note thatit is rom 1994-95 which means three years aterthe initiation o the economic reorms oreigninvestment abroad (net) has started occurring. Olate, we nd that this investment is hal the netFDI inows.

What we observe that net FDI and net oreigninvestment abroad during the period under

Table 9 : Correlation Matrix betweenNet Transfers and Degrees of

Openness

rade Rela-ted Degree

o Openness

ForeignCapitalRelated

Degree oOpenness

Net ransers/GDP

0.94 0.94

Net Privateransers/GDP

0.90 0.90

Source: Authors own calculations from the datasourced from the Database on Indian Economyavailable at www.rbi.org and accessed on 26thOctober 2012.


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consideration are highly correlated in the oppositedirection with correlation coefcient being -0.96.With net FPI ows oreign investment abroadhas lower correlation (-0.53). It is to be notedthat the trade related degree o openness and netoreign investment abroad are highly and negati-vely correlated (-0.87). We nd a low correlation

(0.48) between net FDI and net FPI ows. NetFDI ows, on the other hand, are highly corre-lated with trade-related degree o openness withcorrelation coefcient being 0.91. Net FPI owsare relatively less correlated with the trade relateddegrees o openness with correlation coefcientbeing 0.60. Te result is an expected one.

Table 10 : Foreign Investments in India

(From 1990-91 to 2011-12) (in US Dollar millions)

YearForeign

InvestmentForeign

Investment inIndia

Foreign DirectInvestment in

India

ForeignPortolio

Investmentin India

ForeignInvestmentAbroad

1990-91 103 103 97 6 0

1991-92 133 133 129 4 0

1992-93 557 557 315 242 0

1993-94 4233 4233 586 3647 0

1994-95 4807 4922 1343 3579 -115

1995-96 4615 4804 2143 2660 -188

1996-97 5964 6154 2842 3312 -1901997-98 5353 5390 3562 1828 -37

1998-99 2312 2412 2480 -68 -100

1999-00 5117 5191 2167 3024 -74

2000-01 5862 6791 4031 2760 -929

2001-02 6686 8146 6125 2021 -1460

2002-03 4161 6015 5036 979 -1854

2003-04 13744 15678 4322 11356 -1934

2004-05 13000 15298 5987 9311 -2298

2005-06 15528 21395 8901 12494 -5867

2006-07 14753 29743 22739 7004 -14990

2007-08 43326 61998 34728 27270 -18672

2008-09 8342 27884 41737 -13853 -19542

2009-10 50362 65485 33109 32376 -15123

2010-11 39653 57355 25884 31471 -17703

2011-12 39231 50362 32953 17409 -11131

Source: Database on Indian Economy as available at www.rbi.org and accessed on 26th October2012 and authors own calculations.

Note: Data for the year 2010-11 is revised and that for the year 2011-12 is provisional. Figures areon net basis in the table.


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Section 4: Net Transfers of

Financial Resources fromIndia during the ReformPeriodWe oer in this section an estimate o net transero nancial resources rom India. Our hypothesisis that globalization in India in terms o ope-ning her markets or the oreign goods as wellas oreign capital has led to transer o nancialresources abroad, which we will try to prove here.We measure net transer o nancial resources(henceorth, NR) as ollows:

NR = B + NI + NFII + NFIA + NL + NBC+ NRDS + NOC + NEO

where B is trade balance, NI is net invisibles,NFIA is net oreign investment in India, NFIA

is net oreign investment abroad, NL is net debtows, NBC is net banking capital ows, NRDSis net rupee debt service, NOC is net other capi-tal ows, and NEO is net errors and omissions.

A negative sign in NR signies outow onancial resources rom India on net basis whilea positive sign indicates inow o nancialresources to India on net basis. We have provi-ded two dierent estimates o net transers oresources (1) net transer o nancial resources(NR) and (2) net transer o nancial resourcesexcluding the net invisibles (NRWONI) ascan be seen rom the able 12 below. Barring the

Table 11 : Foreign Investment in India as Percent of GDP (in percent)

Year FI/GDPFIIA/GDP

FDI/GDP

FPI/GDPFIA/GDP

1990-91 0.13 0.13 0.13 0.01 0.001991-92 0.22 0.22 0.21 0.01 0.00

1992-93 1.00 1.00 0.57 0.44 0.00

1993-94 8.74 8.74 1.21 7.53 0.00

1994-95 9.31 9.53 2.60 6.93 -0.22

1995-96 8.61 8.96 4.00 4.96 -0.35

1996-97 11.26 11.62 5.37 6.25 -0.36

1997-98 9.93 10.00 6.61 3.39 -0.07

1998-99 4.57 4.77 4.90 -0.13 -0.20

1999-00 9.81 9.95 4.15 5.80 -0.142000-01 11.24 13.03 7.73 5.29 -1.78

2001-02 12.76 15.55 11.69 3.86 -2.79

2002-03 7.87 11.37 9.52 1.85 -3.51

2003-04 23.05 26.29 7.25 19.04 -3.24

2004-05 19.83 23.33 9.13 14.20 -3.50

2005-06 21.05 29.00 12.07 16.94 -7.95

2006-07 18.75 37.81 28.90 8.90 -19.05

2007-08 45.97 65.79 36.85 28.94 -19.81

2008-09 8.73 29.17 43.66 -14.49 -20.442009-10 54.08 70.32 35.55 34.77 -16.24

2010-11 37.11 53.68 24.22 29.45 -16.57

2011-12 35.19 45.18 29.56 15.62 -9.99

Source: Database on Indian Economy as available at www.rbi.org and accessed on 26th October2012 and authors own calculations.h

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years 1990-91, 1995-96, 2008-09, and 2011-12there are positive NRs which represent inwardows o nancial resources to India on net basis.However, excluding net invisibles, net transerso nancial resources (NRWONI) have beennegative most o the years during the periodunder consideration. Te years when NRWO-NIs were positive are 1993-94, 1994-95, 2003-04and 2007-08. Tis shows during the globalisationperiod there is net transer o nancial resourcesrom India which vindicates our hypothesis.Note that NRWONI has increased in absoluteterms over the years. Tis is also reected whenNRWONI is expressed as percent o GDP (thelast column o able 12). In act, in recent years,NRWONI has remained more than the GDPo the country a act which always remains

oreclosed.

Our second hypothesis is that with more ope-ning up o the economy, net transer o nancialresources also rises the act which have triedto capture in terms o the correlation coefcientbetween net transer o nancial resources (bothNR and NRWONI) and degree o openness(both oreign trade related degree o opennessand the oreign capital related degree o open-ness). One can see rom able 13 below thatNR and both the degrees o openness have lowcorrelation. But NRWONI and oreign traderelated degree o openness and also, NRWONIand oreign capital related degree o openness arehighly and negatively correlated. Tis vindicatesour hypothesis that with more openness moreresources are getting transerred rom India.

Table 12 : Net Transfer of Financial Resources from India

(From 1990-91 to 2011-12) (in US Dollar millions)

Year NR NRWONI GDPNR/GDP

(in percent)

NRWONI/GDP

(in percent)

1990-91 -2492 -2250 77025.75 -3.24 -2.92

1991-92 2599 979 60257.00 4.31 1.62

1992-93 -590 -2511 55573.67 -1.06 -4.52

1993-94 8535 5638 48414.57 17.63 11.65

1994-95 5787 107 51625.03 11.21 0.21

1995-96 -1222 -6669 53601.19 -2.28 -12.44

1996-97 6793 -3403 52961.47 12.83 -6.43

1997-98 4511 -5497 53883.75 8.37 -10.20

1998-99 4222 -4986 50593.75 8.34 -9.85

1999-00 6402 -6741 52172.00 12.27 -12.92

2000-01 5869 -3925 52131.04 11.26 -7.53

2001-02 11757 -3217 52389.86 22.44 -6.14

2002-03 16985 -50 52895.62 32.11 -0.09

2003-04 31421 3620 59633.01 52.69 6.072004-05 26159 -5073 65571.35 39.89 -7.74

2005-06 15052 -26950 73765.83 20.41 -36.53

2006-07 36606 -15611 78671.38 46.53 -19.84

2007-08 92165 16434 94238.87 97.80 17.44

2008-09 -20080 -111685 95590.98 -21.01 -116.84

2009-10 13441 -66581 93123.57 14.43 -71.50

2010-11 13050 -71598 106852.40 12.21 -67.01

2011-12 -12830 -124434 111468.99 -11.51 -111.63

Source: Database on Indian Economy as available at www.rbi.org and accessed on 26th October 2012 andauthors own calculations.Note: Data for the year 2010-11 is revised and that for the year 2011-12 is provisional. Figures are on net basisin the table.


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Section 5: Some Concernwith Economic Reforms inIndia

Te economic reorm measures in India can bestbe described as been characterised by neoliberalagenda which emphasises on (a) replacing state-determined market regime with ree competitivemarket, (b) replacing public sector with privatesector and (c) attracting oreign capital or growth.Te neoliberal policy is entirely growth-centric the growth which has remained jobless and ine-quality augmenting.10 We will make an attemptto estimate the relationship between economicgrowth and degree o openness in India, andalso between net transer o nancial resources

and economic growth in India during the reormperiod. Later, we will try to understand analyti-cally the implications o policy stance oered bythe Government o India in recent time.

We nd some correlation between the economicgrowth rate11 and the degree o openness during

10. See Sunanda Sen and Byasdeb Dasgupta (2009),Unreedom and Waged Work Labour in Indias Manuactu-ring Industry, SAGE, New Delhi.

11. Data or economic growth rate has been sourced romthe Economic Survey, Government o India (2011-12) romable 1.2 in page A.4. Here the growth rate reers to theannual growth rate o Gross National Product at actor costsat 2004-05 prices.

the reorm period, which to our understandingimplies both economic growth rate and degreeo openness have mutually inuenced each other.Although the correlation coefcients are not veryhigh but they are positive and signicant. Te cor-relation coefcient between economic growth rateand the oreign trade related degree o opennessis 0.52 while that between growth rate and theoreign capital related degree o openness is 0.53.

But when correlations are calculated at the abso-lute levels they produce little bit dierent results.Te correlation coefcient between GDP at ac-tor costs (in US dollar) and the sum o value oexports and imports rom 1990-91 to 2011-12 isound to be quite high and positive (0.94). Simi-larly, the correlation coefcient between GDP

and sum o oreign capital ows, which is the sumo credit and debit side entries o FDI, FPI andoreign investment abroad, is ound to be 0.93.Tis implies the mutual associations betweenvolume o GDP and oreign trade ows andoreign capital ows remained quite high duringthe reorm period.

Also, we nd some between association betweennet transer o nancial resources (NR) andeconomic growth rate with the correlation coef-cient between them being 0.44 which is not very

strong. Te mutual association between econo-mic growth rate and the net transers o nancialresources without net invisibles is even less strongand insignicant with the correlation coefcientbetween them being only -0.21. Tis in otherwords means net transer o resources occurredduring the reorm period irrespective o whethergrowth has taken place or not. Rather, they maybe mutually associated with non-growth actors one o them may be the rupee-dollar exchangerate.

When correlation coefcients are measured atthe absolute levels between GDP and NR andalso between GDP and NRWONI the resultgets partially changed. Te correlation coefcientbetween GDP and NR still becomes quite lowat 0.13. On the other hand, the correlation coe-cient between GDP and NRWONI at theabsolute levels turns out to be negative and highat -0.77. Te latter signies with more growthmore net outward ows rom India and vice versa.But at the absolute level there is not much mutual

association between GDP and NR. So, growthtriggers very little inward resource transer andvice versa.

Table 13 : Correlation Matrix betweenNet Transfers of Financial Resourcesand Degrees of Openness in India

during the Reform Period

Foreign

rade Rela-ted Degree

o Openness

Foreign

Capital Rela-ted Degree

o Openness

Net ransero Resources(NR) aspercent o GDP

0.10 0.14

Net ransero Resourceswithout NetInvisibles(NRWONI) aspercent o GDP

-0.79 -0.74

Source: Authors own calculations from the datasourced from the Database on Indian Economyavailable at www.rbi.org and accessed on 26thOctober 2012.


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Another macroeconomic variable which is quiteimportant in the present day context is theexchange rate. We nd some signicant relation-ship between the exchange rate at the levels andGDP, Sum o the value o exports and imports,Foreign Capital Flows, Net ranser o FinancialResources (NR) and Net ranser o FinancialResources without Net Invisibles (NRWONI)with the correlation coefcients being 0.30, 0.52,0.49, 0.26 and -0.37 respectively. Hence, there isto some degree mutual association between theexchange rate o rupee against US dollar and theremaining variables mentioned above.

Tereore to a certain extent growth and exchangerate are the two variables which inuence andalso get inuenced by the degrees o openness

and also by the net transers o nancial resources.Following Sen (1994), we can write in the contexto an open small economy,

g = s/[k (R/Y)] where g reers to the GDPgrowth rate, s the savings propensity, k thecapital output ratio, R the resource transerand Y the GDP.12

Now, R is nothing but the dierence betweenimports (M) and exports (X) or (M-X) which isthe negative o trade balance B = (X-M) = NX

where NX stands or net exports.Now, current account balance (CAB) can be writ-ten as:

CAB = B + NI where B = X-M = -R andNI is net invisibles.

Now, we can write R = NI CAB

Now, rom the national income identity or anopen economy we have:

Y = C + I + (G-) + (X-M) where C is the

consumption expenditure, I is the investmentexpenditure, G is the government expendi-ture, and is the tax revenue.

Or Y = C + I + FD R where FD = (G-) isscal decit.

Tereore, we can write:

-R = (Y-C) I FD = (S-I) FD where Sstands or gross savings in the economy.

Putting this into the growth equation above givesus:

12. For derivation o this growth equation see Sen (1994)page 806.

g = sY/[kY + (S-I) FD]

Now, dg/d(FD) = sY/[kY + (S-I) FD]2 > 0

Tis means in a small open economy with rise inscal decit growth will rise.

We can present the result in somewhat dierentmanner as ollows:

Note that in the balance o payments o a country,CAB + K = 0 where stands or capital accountbalance indicating net capital transers. I CAB< O then K > 0 indicating net capital transersto the country. On the other hand, i CAB > O,then K < 0 indicating net capital transers romthe country.

Note that CAB = -R + NI where R = M-X

We can write R = CAB NI = - K NINow putting this into the growth equation abovewe get the ollowing:

g = sY/[kY + K + NI]

Clearly then, dg/d(K) < 0 or even, dg/d(NI) < 0

Tis mean with growth to rise there must be allin net capital ows or net invisibles rom abroad.

Now, in the present context we can pose net capi-tal ows as negative unction o exchange rate i.e.

K = (E) where we presume that d(K)/dE < 0.Tis is a standard assumption with regard to capi-tal ows in the context o a exible exchange rateregime. Tis means with exchange rate apprecia-tion more capital will ow in and vice versa.

So, summarising our results we can comment theollowing:

Firstly, scal decit (FD) in a small open eco-nomy uels growth which goes against the stan-dard claim o the neoliberal regime. Tereore,the current venture by the Government o India

to cut scal decit drastically may hamper thevery growth centred around which the entireneoliberal agenda o India has been built in thelast two decades.

Rather, as the result here indicates, may reducegrowth. So, the recent opening up o the Indianeconomy to FDI in retail and also in other sec-tors like insurance and aviation how ar will beable to augment growth is doubtul. In act, inthis paper we have noticed that there is not muchstrong relationship between the Indias degrees oopenness and the economic growth during thepost-reorm period.


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Note that rom the national income identity wecan write:

FD = (S-I) + NI + K

For FD < 0, either (NI + K) < 0 i (S-I) < 0or 0 0 but I (NI + K)I >I(S-I)I. Tis also may trigger o net outward capitaltranser rom the country i scal decit is to bereduced.

Tis is not to say that there will not be any netoutward capital transer i scal decit is raised.Note that or FD > 0 either (NI + K) > 0and (S-I) > 0 or, (NI + K) < 0 and (S-I) >0 and I(NI + K)I < I(S-I)I. Te second caserepresents net outward ows o capital rom thecountry when the scal decit rises.

Hence, we nd her some connection between the

scal decit and net capital transer to the country.We observe rom our above analytics that capitalmay ow out o the country on net basis when s-cal decit is reduced. Even there is a chance thatcapital may ow out o the country when scaldecit is increased. We have to bear in mind thatexchange rate plays a crucial role in determiningnet capital ows to the country. So, with deprecia-tion there is a chance that on net basis capital willow out o the country. And that may automati-cally put pressure on scal decit to be curtailed.

I the government is determined to stop capitaloutow then one possibility is the regular inter-vention in the oreign exchange market by thecountrys central bank which the Reserve Bank oIndia is continuously doing. Ten, that may res-trict the central bank to pursue an autonomousmonetary policy.13 So, the tendency o capital toow out o the country the pressure is there orthe government to reduce scal decit on the onehand and or the central bank to intervene in the

13. See Sunanda Sen (2010), Managing Finance in Emerg-ing Economies: Te Case o India Working Paper No. 630,Levy Institute o Bard College, New York, USA, October2010.

oreign exchange market. Both o these pressuresmay partially take away (i not ully) the auto-nomy o the countrys authority with regard to asovereign scal and monetary policy. Hence, therecent reorm agenda o the Indian governmentto open up urther her economy and to reduce thesubsidies to curtail the scal decit do not ndany logical clue as ar as our analysis in this paper.

ConclusionSumming up our major arguments in this paper,we can opine that the globalisation and nan-cialization as two major processes o the worldeconomy have their own dents on the exter-nal dimensions o the Indian economy. Tere isempirical evidence o net outward transers o

nancial resources rom India during the reormperiod. And these net transers are highly corre-lated with the degree o openness o the Indianeconomy. o our understanding this is a ploy toaccumulate more and more surplus rom Indiaby the global capitalism which works in termsvarious global circuits o capital.14 Recent policystance adopted by the Government o India byallowing FDI in retails and allowing more FDI ininsurance and aviation industry and the target oslashing down scal decits by cutting subsidiesinstead o enhancing growth may impede it. Fur-

ther, these policy initiatives are sure to generatemore unemployment and joblessness and hence,more socio-economic inequality in the country.Tereore, we do not nd any rationale or suchpolicy move given the external dimensions oneoliberal India. Rather, these policies in terms oour understanding will go a long way to serve theinterests o the global capital.

ReferencesChakrabarti, Anjan, and Anup Kumar Dhar andStephen Cullenberg (2012), World o the Tird andGlobal Capitalism, World View Press, New Delhi.

Economic Survey, Government o India, 2011-12,Oxord University Press, New Delhi.

Sunanda Sen (1994), Dimensions o IndiasExternal Economic CrisisEconomic and PoliticalWeekly, April 2, 1994.

Sunanda Sen (2010), Managing Finance inEmerging Economies: Te Case o IndiaWorking

14. See Anjan Chakrabarti, Anup Kumar Dhar and StephenCullenberg (2012), World o the Tird and Global Capitalism,World View Press, New Delhi, India.


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Paper No. 630, Levy Institute o Bard College,New York, USA, October 2010.

Sunanda Sen and Byasdeb Dasgupta (2009),Unreedom and Waged Work Labour in IndiasManuacturing Industry, Sage, New Delhi, June

2009.


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