Financial sector reforms in developing countries: The Indian experience

In this paper, we analyse the experience of financial liberalisation in India by exploring the factors, which are specific to that country. Although it was not a planned strategy, the Government of India (GOI) has adopted mostly a gradualist approach to liberalisation and we discuss the economic and political rationale for such an approach in this paper. The gradualists argued for stretching out of the reform measures over a longer time period reasoning that this would ease the pain of adjustment process and allow time to develop a political consensus in support of the reform process which make it more politically sustainable (Toye, 2001). Indeed, gradualism was considered as an inevitable outcome of India's democratic and highly pluralistic polity in which economic reforms could be implemented only if they were based on a sufficiently wide popular consensus (Kohli, 1989). The structure of the paper is as follows. The next section presents a brief account of the financial structure in India until the reform period. Section 3 provides the context and arguments for a gradualist approach to financial sector reforms. Section 4 examines the sequencing and pattern of financial sector reforms in India and the stability of the financial system during the reform period.