RBI for financial reforms

By Our Correspondent

Mumbai

July 4: The RBI governor, Dr Y.V. Reddy, has questioned, whether the benefits of financial liberalisation and financial globalisation need to be re-evaluated.

He said,"It is possible to argue that liberalisation of trade in goods has contributed more to growth and price stability than financial sector initiatives in particular," he said it could be argued that "the incentive frameworks for financial intermediaries appear to be disproportionate to their conceivable contribution to the economy."

He suggested the need to review whether it is necessary to persevere with fin-ancial innovation and urged regulators to give priority to facilitate innovations.

Dr Reddy was speaking at the meeting of the Task Force on Financial Markets Regulation organised by the Initiative for Policy Dialogue at Manchester in the United Kingdom.

The RBI Governor also raised issues for future discussion on whether there was excessive financialisation of the political economy and financialisation of corporates.

He observed that financial intermediaries with cross border investments and massive spread of investors are difficult to regulate and this could result in them using their clout in the political economy.

The central bank chief quoted Professor Jagdish Bhagwati’s reference to Wall Street – Washington links that he said was relevant in this context.