The India China story

Indian Express, 15 Sept 2006

In perfect sync with the timing of our own report on capital account convertibility, policy makers, private sector leaders, financial government and non-government representatives and top academics from various parts of the world will focus, later this week, on the impact of the opening up of our financial sector on the international financial system. The India China story will get the offical stamp of the big boys club of the international financial community when the Plenary Session of the Programme of Seminars at the annual meeting of the IMF and World Bank focuses on the Financial Sectors in India and China.

While RBI's recent report on capital account convertibility shows policy makers in India worry about the impact of financial globalisation on India, the world is worrying about the mirror image of this problem. Until now financial restrictions have curtailed the interaction of financial markets in India and China with the rest of the world. But now that steps are being taken to reform financial sectors in these two rapidly growing giants, the international financial community is focussing on what it means for them.

The seminar is being held as part of the annual meetings of the board of governors of the International Monetary Fund and the World Bank. These meetings are normally held in Washington D.C. But every 3 years other cities bid for the meeting and the meeting is held out of the US. This year the meeting is being held in Singapore on September 19 and 20. The delegates include Finance Ministers and governors of central banks and NGOs and their teams.

The choice of location in Asia and the programme of seminars titled "Asia in the world, the world in Asia" for the first time explicitly recognises the growth in the two Asian giants. Like the session on the impact of the financial sector, the session on growth also focuses on the nature of growth in China and India and the implications for the rest of the world. A third session focussing on the emergence of India and China addresses the issues of lessons and challenges for Latin America and the Carribean.

But despite the spectacular rise of the new world, the old world is unwilling to give up the power it has. The rising GDP of India and China is not getting reflected in the vote share of these countries. While the IMF has proposed to increase China's vote share in an adhoc mannner, along with that of Mexico, Turkey and South Korea, this allocation is not being done is a fair manner that involves a correct assessment of the declining economic power of europe and the rising power of India.

The explicit focus on India and China and the views that emerge from these discussions should ideally help in better identifying their role and impact on the international finacial system in years to come.

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