This refers to the report "Reducing vulnerabilities crucial for emerging economies: Rajan" (May 20). The positive spillovers of the unconventional monetary policy have accrued to the emerging economies. But the 'taper tantrum' of May-June 2013, triggering an indiscriminately huge outflow of capital, has been haunting the emerging market economies since then. Unconventional monetary policies cannot be sustained for an indefinite period and, therefore, it is inevitable that the same would be unwinded today or tomorrow. However, if the unwinding process is well-spaced, well-sequenced and duly supported by an effective communication channel, its effects on market volatility could be mitigated to a significant extent to the advantage of all.
Like many other emerging economies, India has plunged into the game of globalisation for quick growth. However, in doing so, it has neglected the needed reform for correcting serious macroeconomic structural imbalances and building deep, efficient and safe financial institutions and markets. This would have provided the required buffer and the ability to contain market volatility, which is triggered by exogenous shocks. That and the effective management of the spillover risk of international monetary policies. At this juncture, there exists no option but to pitch for co-operation and collective action in a bid to reduce vulnerability of the emerging nations that are weak and deficient in their own policy options. Reserve Bank of India Governor Raghuram Rajan has taken over the baton for the vulnerable emerging economies. But it is power, politics and self interest that would ultimately govern as to how the toll of the eventual taper would get dispersed.
Biplab Chakraborty Kolkata
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