New Lessons in the Old bottle of Economics

With the surge in inflow of funds, Regulatory authorities have become wary. Ask a question to any optimist, all he needs is

1) Free capital movement in the economy which encourages growth

2) Stable exchange prices, which backs stability

3) An independent monetary policy to control inflation to comfortable levels

Hitting us back to “Impossible Trinity”, only two of the three of the above needs are possible at any point of time. The futile experiments of authorities that are rubbing the corners of the triangle are still going on.

Financial inclusion can be a solution for many problems in ideal conditions. If you give me 1000rs it increases my spending power. If you give 1000rs to 1000 people, the spending power hardly gets affected. So I can fix the variable 3. Now I can possibly control 1 & 2.

On practical grounds, as C.B.Bhave said “India is not ready for financial inclusion in equities market.” It’s a noble goal and a Holy Grail. A poor man’s life time saving of 50000 can’t make him afford to invest in a MF market and sustain the volatility. I agree that, when there is more inclusion in markets, volatility decreases. But things do not happen like rubbing aladin’s lamp and there can be many sufferers in course of journey. Again a “New lesson in the Old bottle of Economics”.