Articles by D M Nachane

By refraining from imposing capital controls, India is today paying a high price in the form of a loss of autonomy in monetary policy, a reduction in the available fiscal space, and bouts of volatility in the foreign exchange and equity markets. These volatility episodes have often created a penumbra of uncertainty around investment decisions. Surprisingly, the pronounced swing of opinion globally against unfettered capital account liberalisation in the light of the recent financial upheavals seems to have completely bypassed Indian policy circles. This article discusses various options for "capital management" that would contribute to growth with stability. These techniques comprise two complementary (and sometimes overlapping) sets of policies, viz, capital controls on inflows/outflows and prudential financial regulation.

Neoclassical economics occupies a virtually unshakeable position in current, mainstream economic thinking, which is attributable to an uncritical acceptance of an orthodox version of the unity of science principle in philosophy. This paper traces the philosophical discourse, distinguishing between the orthodox version and the newer and more flexible version of neoclassical economics. Can we find an alternative approach that breaks away from the limitations of neoclassical economics?

he Moral Consequences of Economic Growth by Benjamin M Friedman

The new Basel accord is slated to come into effect in India around 2007 raising the question of how the revised standards will influence bank behaviour. Using a simple theoretical model, it is shown that the revised accord will result in asymmetric differences in the efficacy of monetary policy in influencing bank lending. This will, however, depend on a number of factors, including whether banks are constrained by the risk-based capital standards, the credit quality of bank assets and the relative liquidity of banks' balance sheets. The basic model is empirically explored using data on Indian commercial banks for the period 1996-2004. The analysis indicates that the effect of a contractionary monetary policy will be significantly mitigated provided the proportion of unconstrained to constrained banks in the system is significantly high.

Banks and financial institutions play a major role in governance of non-financial companies in India through the mechanism of nominee directors. This paper probes two allied issues: firstly, the isolation of the firm specific factors which determine the presence of bank nominee directors on boards and secondly, whether companies, with bank nominee directors exhibit better performance/governance than companies with no banker representation on their boards. A Probit model estimated over a cross-section of Indian manufacturing firms for 2003, indicates that bankers on boards seem to exert a healthy impact on the companies. In fact, large public limited companies are likely to exhibit banker representation, primarily in their role as expertise providers. The evidence from Tobit model reconfirms these results.