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Jerry Built Indian Financial System Still Working

Triumph of common sense

FORMER RBI governor Y V Reddy has come in for all-round praise for his cautious approach in implementing reforms in the financial sector and in regulating banks tightly when it came to their exposure to derivatives. This obviously minimised the impact of the Wall Street collapse on Indian banks. Some time ago Nobel-prize winning economist Joseph Stiglitz met Dr Reddy at a conference in London and asked him how he managed to read the tea leaves so much better than others. Reddy told Stiglitz that he relied on robust common sense “uncomplicated by intricate economic theory and knowledge”.

Jerry Built, Primitive

While the RBI has avoided the excesses of the Western financial system,which depends on availablity of victims and covering its tracks, after the ‘kill’, the dependence on a ‘jerry-built’ system, is something that is bothersome. Till such time that the RBI does not break out from its colonial mould, India will pay a heavy price.

The co-opting of indigenous finance methods (chit funds, group lending) which the rural and informal sector uses – along with the indigenous banking system represented by Indian money lenders, is a glaring example. Inclusion of these indigenous institutions will itself add another 1%-3% growth rate at the bottom end of the economic ladder.

While Western Union earns millions in India, its predecessor, the Indian hawala system has fallen into disrepute. The hawala system operates at 10% of the cost – and is as fast Western Union.


The 2ndlook model for a Third currency Bloc is ready. Join in to review, participate, critique and develop the First Cut. While the need for a new global reserve currency has been evident, there is very little in the public sphere. The speed of events has clearly caught the BRICS and Third World napping – and unprepared. But, not 2ndlook – who, from the very beginning, proposed that the world should stop clinging to the Dollar-Euro skirts.

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