Rebalancing and structural policies—an Indian perspective

Parthasarathi Shome

Oxford Review of Economic Policy, 2013, vol. 28, issue 3, 587-602

Abstract: The global economic crisis of 2008–9 followed by the euro area sovereign debt crisis of 2011–12 has revealed the need for global rebalancing. Economies with current account surpluses need to increase domestic demand, while deficit countries need to reduce their deficits by boosting exports through productivity gains. India falls within the deficit category, having suffered both current account and fiscal deficits that have persisted over recent years. A dearth of adequate structural reform underlies India’s macroeconomic imbalances. Analysis reveals that current account surplus economies tend to experience comparative advantage in their goods sector while deficit countries have comparative advantage in the services sector. The question posed is whether liberalizing the services sector would reap dynamic benefits by enhancing services exports and containing India’s deficit. Opening up the services sector could, however, have opposing effects. On the one hand, it would support greater export of services, thereby reducing the current account deficit. On the other, the probable rise in foreign participation would translate to an increase in imports. The paper argues that the former effect is likely to prevail since structural reform in the services sector has the potential to reduce inefficiencies created by trade and capital flow restrictions. Reform would improve resource allocation, increase investment opportunities and enhance economic growth. Further, while the initial phase of foreign entrants would imply increased imports, in the medium term, successful joint ventures are likely to spread out internationally with positive ramifications for exports. Solutions in India are to be found in liberalizing, among others, the financial—including banking and insurance—sector, as well as retail trade, though its achievement will not be easy. Copyright 2013, Oxford University Press.

Date: 2013
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1093/oxrep/grs036 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:oxford:v:28:y:2013:i:3:p:587-602

Access Statistics for this article

Oxford Review of Economic Policy is currently edited by Christopher Adam

More articles in Oxford Review of Economic Policy from Oxford University Press and Oxford Review of Economic Policy Limited
Bibliographic data for series maintained by Oxford University Press ().