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Is India Hedged Against Systemic Risk? An Attempt at an Answer

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  • Gurbachan Singh

Abstract

India has large twin deficits, high prices of some real assets, and (less familiar) fragile financial interdependence between banks and the government. So there is a systemic risk. However, India has a reasonably good record so far with regard to avoiding financial crises. This is due to five mitigating factors: ( a ) financial repression in banks; ( b ) unanticipated jumps in inflation rate; ( c ) somewhat regular bailouts; ( d ) misplaced confidence; and ( e ) good growth. The first three factors have ‘persistent’ costs. There are reasons to believe that these costs are high. The fourth factor is not a reliable ‘hedge’ against systemic risk. Finally, growth is a camouflage rather than a solution. The bottom line is that there is a serious problem at hand even if there has been no ‘financial crisis’ for long. We make long-term policy suggestions in this extensive but simple analytical article on the economic aspects of macro-financial stability.

Suggested Citation

  • Gurbachan Singh, 2013. "Is India Hedged Against Systemic Risk? An Attempt at an Answer," Review of Market Integration, India Development Foundation, vol. 5(1), pages 83-129, April.
    • Handle: RePEc:sae:revmar:v:5:y:2013:i:1:p:83-129
    DOI: 10.1177/0974929213496502
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