The financial crisis, working its way westward across Asia, reached India this week. India’s leaders are worried, really worried. In fact, they’re so worried by the dismal performance of their stock index last year that they have made it easier for foreign investors to invest directly in Indian firms. (FT subscription required)
From as far back as Mahatma Gandhi’s boycotts, India has been protectionist. It’s important to note that despite some deregulation and market opening, this hasn’t totally changed. To some degree, India isn’t opening its markets because its protectionist ideology is breaking down; it’s opening them because the system is breaking down.The further opening of India to global financial flows faces a number of challenges. The largest is the culture of corruption that pervades India’s civil service. Indian officials see bribes as a service fee, but this pay-to-play culture will prove discouraging to foreign investors, even if markets are officially opened to them.But for now it’s good to see India taking a step in the right direction. Protectionism might not have been killing India, but it wasn’t making it stronger either.