Regime of Drain – an Update
This issue carries three articles: a note on whom we are addressing in Aspects; a detailed article on foreign financial flows and the Indian economy; and a description of a village panchayat elections and its consequences. The pdfs are linked below.
The second article in this issue, regarding the Government’s attempt to attract foreign investment in Indian government bonds, was written over a year ago. It now appears that the Government’s attempt has stalled. The reason for its stalling is significant: namely, that foreign investors feel that the returns on Indian government bonds are now not attractive enough, in comparison with US government bonds, on which interest rates have recently been increased. The ‘spread’ – i.e., the difference – between interest rates on US government 10-year bonds and Indian government 10-year bonds has narrowed sharply.
From 4.94 percentage points on December 31, 2021, it has narrowed to 3.45 percentage points on December 31, 2022, which is far below the average for the previous decade. Thus, even though interest rates in India are still considerably higher than those in the US, foreign investors demand greater rewards, given what they consider to be the higher risks on Indian government bonds. This is all the more so in a situation of global turmoil and uncertainty. And so there is little prospect of their making large investments at present. It is for this reason that the proposal appears to have gone into cold storage for the moment. This underlines again how the flows of foreign financial investment into India place the country in the grip of developments outside its control.
— The Editor, Aspects of India’s Economy
1. Whom Are We Addressing? – [pdf]
2. A Regime of Drain, External Control, and Impoverishment – [pdf]
3. India’s Democracy in a Nutshell – Manali Chakrabarti – [pdf]
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