Indian State Economies

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[url="http://www.huffingtonpost.com/robert-kuttner/ask-dr-reddy_b_533328.html"]Ask Dr. Reddy[/url]

India had no financial crisis. Its high rate of economic growth continued unabated. Why? Because Reddy, over the objections of Western bankers, International Monetary Fund kibitzing, and kindred local banking pressures, simply did not allow the Indian banking system to engage in Wall Street-style speculation.



I first met Reddy at a U.N. conference in 2008 just as the financial meltdown was going critical. I asked him how India had managed to dodge the bullet. "We are a poor developing nation," Dr. Reddy said puckishly. "We don't really understand these securities, so we don't permit our banks to use them. We leave them to the advanced nations like you."



How did Reddy manage that trick? First, banks that wanted to issue complex securities were required to hold capital reserves against them. That requirement shut down the game of bank-sponsored gambling that crashed the American system. Second, as Reddy told me Saturday, the Indian central bank didn't just rein in banks. It also regulated other financial players.