Monday, October 13, 2008

Cycle reversal - Nationalisation VS Liberalisation

Post the collapse of Berlin wall and the fall of communism, the western world started following the capitalistic path of America. Many countries started to open their market for trade. Those countries which are closed for international trade are treated to be conservative in its behaviour. Majority of developed nations started preaching that capitalism is the only way to improve national status and for business growth. The term Neo Liberalism started to be seen in the news articles.

Along with the neo liberalism the introduction of internet enabled the companies to go global with less issues and problems. Thus the companies started to become global and started diversifying themselves across borders. This raised new terms like Globalization, Internationalization, Transnational business, Americanisation, Regionalization. The companies across world wanted to follow any one of these terms.

When the globalization path was seen as the safe bet to get good profit across globe, the financial downturn forced by credit crunch made top management of many companies to rethink on this aspect. Even the government bodies started to nationalize its banks. We saw the bailout action first in US and slowly as a precautionary measure in UK. The public and management in India suddenly started praising Y.V. Reddy(former reserve bank of India) chairman who maintained conservative approach in liberalizing banking sector which somehow got insulated due to the financial legistalions that the country follow. But this does not mean that India is not affected by the financial crisis. The financial crisis entered into Indian market through Indian stock market. For long period the Indian stock markets are relying on foreign institutional investors to inject capital into Indian markets. Thus when there came the real need for money by the institutions in their respective countries the FIIs started taking money away from our markets. This led to sudden fall in BSE which reached a life time high of around 21K mark.

The thought to take away is that should RBI need to think about liberalizing Indian financial sector when western countries are trying to nationalize its banking sectors? Is the financial regulations and rules safe enough to safeguard out Indian public? Are out government having strong hold in our business methodology which follows western system of management?

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