RBI Governor for free trade

BANGALORE: Governor of the Reserve Bank of India (RBI) Duvvuri Subbarao on Friday vouched for financial liberalization and free trade, as he claimed that they have the same benefits for entrep

Published: 31st March 2012 02:27 AM  |   Last Updated: 16th May 2012 09:50 PM   |  A+A-

1-RBI

D Subbarao, Governor, RBI, and Mukhesh Ambani, Chairman, Board of Council, IIM-B, during 37th Annual Convocation of IIM-B, in Bangalore on Friday | E

BANGALORE: Governor of the Reserve Bank of India (RBI) Duvvuri Subbarao on Friday vouched for financial liberalization and free trade, as he claimed that they have the same benefits for entrepreneurship and infrastructure similar to trade liberalization.

Delivering the keynote address at the 37th Convocation ceremony at the Indian Institute of Management- Bangalore (IIM-B), Subbarao said, “My broad position on this issue is that financial liberalisation can offer potentially huge benefits, including collateral benefits, as does trade liberalisation."

“It is also argued that openness to trade has spillover effects in terms of entrepreneurship, productivity improvement and development of physical and social infrastructure. It is not clear why one should presume that financial liberalisation does not offer similar collateral benefits,” he said.

Subbarao added that there were preconditions to be met to reach a sustainable state of financial liberalisation.

“The government’s fiscal position should be sound, regulation and supervisory systems should be effective and there should be capacity for instituting internal controls within financial institutions,” Subbarao said.

‘Political Compulsions’

The Reserve Bank of India  governor further said that the concept of free trade in a globalise scenario could be threatened by political compulsions. “The mere availability of opportunities is no guarantee that governments would remain committed to open trade and finance,” he said.

Subbarao added, “Commitment could easily run into sands of political compulsions if a country perceives that it is losing comparative advantage or if the costs of globalisation are seen to exceed the benefits.” Referring to the context of outsourcing of jobs, Subbarao warned that if the bargaining power of workers is not safeguarded, then ‘the workers could get restive and demand protectionist measures’.

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