A super column by Arvind Subramanian of PIIE.
He says Indian regulations prefer foreigners over Indians as far as finance is concerned.
Can nationalism be harnessed to promote sound economic policies? That seems an odd question to raise at a time when Indian policymakers have rightly been taken to task in recent months for the heavy-handed and arbitrary treatment of foreign investors. But, yes, in the financial sector, policies penalize or tax Indians while treating foreigners more favorably. Even more worryingly, all the signs are that this wedge may even diverge to the advantage of foreigners and to the detriment of the economy.
One of the two policies in question is the statutory liquidity ratio (SLR), a seemingly arcane measure under which Indian banks are forced to hold a hefty portion (23 percent) of their assets in government bonds. This policy would rank high among the bad relics of pre-reform India. The second is the openness to foreign capital, especially foreign financial flows. Consider each.
Really interesting perspective from Prof. Subramanian. He usually has some super things to say on the paradox that is India..