Capital Flight From Developing Countries by Benu Varman-Schneider

Author:Benu Varman-Schneider [Varman-Schneider, Benu]
Language: eng
Format: epub
Tags: Political Science, General
ISBN: 9780429715006
Google: 7CmNDwAAQBAJ
Goodreads: 44597818
Publisher: Routledge
Published: 2019-03-07T00:00:00+00:00

India's Economic Performance

The case study of India illustrates the need for country specific models to explain and measure capital flight because the same set of macroeconomic factors are not common to all countries. The Latin American experience with capital flight is largely explained in terms of overvalued exchange rates, budget deficits, inflation, and the build up of external debt. The experience of the Philippines illustrates the role political and economic instability assumed in explaining the build-up of external debt and capital flight. In India it was the threat to incomes and wealth derived from rent-seeking, bribery and corruption which define the motivating factors inducing capital flight from the Indian economy. It is argued that India's economic performance and balance of payments adjustment were fairly satisfactory. On the policy front, import liberalization policies coupled with the events described in the previous chapter might have intensified capital flight by providing new sources of finance and channels. The effect of import liberalization, however, cannot be separated from other motivating factors. The main features of India's economic performance need to be emphasized to show that capital flight from the Indian economy was not induced by its macroeconomic performance. India's economic performance presents a contrast to the experience of the Philippines. The annual growth rate of the Indian economy rose from about 3 percent till the early '60s to little over 4 percent during the '70s and has averaged 5 percent in the '80s. The acceleration of the rate of growth, despite the paucity of resources, has been achieved with the fullest regard to the commitment to self-reliance. Over 90 percent of the resources deployed were mobilized internally.16 When international comparisons are made, one should not forget that in the eighties, when growth rates dipped both in the developed and the developing countries — and sometimes were even negative — India's growth rate showed a perceptible improvement. Also, while many newly industrialized countries were caught in a debt trap, India's international credit rating continued to be high. A Debt/GNP ratio of about 17-18 percent (table 4.1) is well within the internationally accepted limits.

Table 4.1: India: Economic Indicators (billions of rupees)

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