Tuesday, May 17, 2005

Crouching Tiger (un)Hidden Dragon - I

There's an article comparing the financial systems in India and China in the new issue of McKinsey Quarterly (or at least in their web-edition (you need to be a registered user) here). Even though the authors are equating (almost exclusively) size/throughput with "development", the magnitude of the gap is shocking.

The simple story is that we don't have enough to save (and we don't save enough), our (formal) financial system doesn't intermediate as much of the total savings into investments as it could/should, it (our financial system) is marginally more efficient than the one in China and finally, the tyranny of compounding laws is widening the gulf between us and them every year. (I need to look into what this "marginally more efficient" means in real data terms - I'm still hoping it is more than "marginal".)

Be that as it may, the policy prescription should be clear to our economic czars too - we need someone to agitate the financial system in a manner that it changes orbits with respect to its performance on the intermediation role. It has, for too long, been just a facilitator for the real sectors, it now needs to become the vanguard and engender developments in the real sector by being out front.

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