It is clearly in India’s interest that the declarations made at the summit are successful. It will reduce the damage India has to experience when things in other parts of the world go wrong. The question is, what is the role that India can play to strengthen the decisions taken at the summit? While on issues such as protectionism, expansionary monetary policy, treaties with tax havens, etc, India can do the things that have been decided by the G-20 and can lead the world by example, India has to follow an entirely different path on its approach towards financial markets and regulation. On some fronts, such as focusing the derivatives business (including credit default swaps) on exchanges with central clearing counterparties, subject to effective regulation and supervision, India is in a position to obtain a leadership role; on most other fronts this is not the case.

In fact, India is many years behind in the way modern finance is regulated. India’s approach continues to be to ban products that the senior staff of our regulators do not understand. The approach in the UK is to ask how to improve the quality of the staff, the procedures the regulator follows, the powers of the enforcement division and so on, so that government does not become a bottleneck to the progress of markets. Not only does India not try to address the more difficult question of how to improve regulation rather than destroy the market for the product which was to be regulated, there is also often visible support for such a system of control from some elements in academia and left-wing political parties. The two approaches — that of India and of the G-20 — are so divergent that it is difficult to reconcile the two. Thanks to this, today India has little to contribute to the G-20, either by example or by intellectual inputs. We have to go a long way — first unbanning finance, then learning how to regulate it — before we encounter problems like the developed world did and are able to meaningfully participate in these discussions.

... contd.