The Hindu : Kerala / Thiruvananthapuram News : Focus on checking inflation, says economist

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Focus on checking inflation, says economist

Special Correspondent

THIRUVANANTHAPURAM: The ongoing global financial crisis and its impact on the Indian economy underlined the need for a course correction in the nation’s macroeconomic policies, according to K.P. Kannan, economist, who is now serving the National Commission for Enterprises in the Unorganised Sector as a member.

Delivering a lecture on “Global Financial Crisis and its impact on India,” organised by the Asian School of Business here on Thursday, Dr. Kannan said that the crisis showed the dangers of blindly following the neo-liberal economic policies.

“If we are partially insulated [from the crisis] and are not in panic, it is because the real economic impact is still indirect. If we had gone ahead with full capital convertibility and higher levels of foreign equity participation in banking, insurance and other financial institutions and fully exposed pension fund and provident fund to stock market volatility, we would have experienced a more widespread loss of wealth of a larger segment of the population,” he said.

Dr. Kannan said the nation’s policy makers had exposed the country to great risk by opening up the financial sector far beyond the levels warranted by the nation’s development problems and capacity.

This was probably on account of the interests of big entities in the private sector, he said.

Intervention

He said that the course correction should begin with governmental intervention to prevent the stock values from falling below a threshold level of confidence. Easing the liquidity scenario was fine, but the focus should be on checking inflation.

Dr. Kannan suggested increasing public expenditure to increase consumption in the short run and public investment to sustain growth at the current rate of more than 8 per cent.

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