Assessing the Investment Climate and Improving Market Access in Financial Services in India

September 30, 2013

Arvind Subramanian testified before the Senate Banking Subcommittee on National Security and International Trade and Finance at a hearing on the investment climate and improving market access in financial services in India on September 25, 2013.

Subramanian shared his observations about the Indian economy and the current climate for foreign direct investment with the panel, addressed the potential for an effective Bilateral Investment Treaty (BIT) between India and the United States, and offered two key recommendations. From Subramanian’s testimony:

The Indian economy recently encountered serious turbulence and will require important reforms to stabilize it. To some extent, India’s problems reflect India’s deep and ongoing financial integration with the world economy. For example, between 2010 and 2012, India received about $160 billion in foreign capital inflows. With the U.S. Federal Reserve planning to reverse its unconventional monetary policy and as the U.S. economy has rebounded, some of this money is flowing back to the U.S., causing currency declines and turmoil in several emerging markets, especially India. But India’s problems also have deeper, domestic origins, and require serious reforms to overcome them (elaborated in my recent New York Times article (attached)). Fiscal consolidation, based on eliminating wasteful subsidies and introducing new taxes, will be critical. But looming elections could complicate reform actions and perpetuate uncertainty and turbulence.

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