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A Dangerous Measure



A Dangerous Measure

e, the undersigned membersof the economics profession,are shocked by the government’s eagerness to introducefull capital account convertibility. Thismove would imply that the inflow andoutflow of capital by residents andnon-residents would no longer besubject to any regulation. This would expose the Indian economy to extreme volatility, since inthe event of a capital outflow, it wouldno longer be only non-residentinvestors who would be able to repatriate their funds, but also Indian residents who would be free to take out any amount of domestic wealth.Such outflows by local residents areprecisely what had contributed to themassive build-up of Latin Americandebt in the 1970s and 1980s. In Brazil, for example, the total amount of theoutstanding external debt in thebeginning of the 1980s was almostequal to the estimated capital flight bythe resident rich. The costs of servicingthis debt and pursuing theconditionalities required to renegotiate the debt were borne by the workingpoor. Similar outcomes of capital accountliberalisation have been observed in a host of other developing countries,such as Turkey, Indonesia and Mexico.It should be noted that the Indian economy could insulate itself from thecontagion of the south-east Asianfinancial crisis in the late 1990s onlybecause the capital controls in place atthe time prevented destabilisingmovements of capital. We do not want the re-enactment in our country of a scenario in which thepoor, who are among the poorest in theworld, have to pay the price for theunrestricted freedom of the rich to shift their wealth out of the country whenever it suits them.

The gains to the economy from thismove are nil. The argument that this isnecessary for attracting direct foreigninvestment does not stand scrutiny. Thebiggest developing country recipients of foreign capital (such as China todayand Taiwan and South Korea in the 1980s) have had major restrictions oncapital flows. We know from our ownexperience that portfolio investment inflows have no stimulating effect onproductive capital formation. On thecontrary, they lead either to undesirable appreciation of the exchange rate(leading to recession andunemployment) or to a mere pile-up offoreign exchange reserves whichactually involves the economy as awhole borrowing dear and lending cheap.

According to the government’s ownpronouncements, the economy iscurrently doing very well. In such acontext, exposing the country tounpredictable movements in capitalflows creates a potential for fragility and crisis that is completely avoidable.This is of particular concern becausethe stock market is alreadyexperiencing a speculative boom.

We urge the UPA government todesist from such an unnecessary and dangerous measure.



S P SHUKLA, New Delhi;

S L SHETTY, Mumbai;





Notre Dame, USA; JEAN DREZE, Delhi; CHAITALI BOSE, Gurgaon;PRABHAT PATNAIK, New Delhi; JAYATI GHOSH, New Delhi; MOHAN GURUSWAMY, New Delhi; T S PAPOLA, New Delhi; AJIT SINGH, Cambridge, UK;KNARAYANAN NAIR, Thiruvananthapuram;K NAGARAJ, Chennai; PRABIRJIT SARKAR, Kolkata; SUDIPTA BHATTACHARYA, Shantiniketan; KANNAN SRINIVASAN, Clayton, Australia;MAHMOOD ALAM ANSARI, Silchar; BISWAJIT HALDER, Murshidabad; NITESH SAHAY, Quebec, Canada; and 140 other economists

Restorative Justice

he judgment in the Best Bakerycase raises a number of issues as far as providing justice in situationsof communal violence is concerned.

(Continued on p 1292)




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(Continued from p 1222)

In instances of communal riots, most governments, not only in India but all over the world, have viewed justice only as a compensation for damages incurred by the victim. This does not address restorative issues of justice nor does it attempt to initiate any reconciliation for both perpetrators and the victims. It is in this context that the Best Bakery case and other previous attempts by the state to provide justice to victims of communal riots need to be analysed.

In situations of communal riots, attempts have been made only to address retributive aspects of justice. Restorative justice, on the other hand, asserts that since crime is a violation of people and relationships, there is an obligation to set things right. Also it involves the active participation of victims, offenders and communities in the search for solutions which promote reconciliation and reassurance.

The Best Bakery case perhaps forms the best example for seeking to rectify lacunae in the criminal justice system. At a procedural level, the state has constituted judicial inquiry commissions, provided compensation to victims and in rare cases punished the perpetrators; but it has become important to envision justice beyond purely state-centric legalistic interpretations. It is, thus, essential to address the trauma that victims and their families encounter at the time of riots and even after the actual act of violence, through reconciliation tools like healing and sustained dialogue at a community level. In communally sensitive areas of Gujarat, this approach to justice, where both victims and perpetrators are brought together, could provide an opportunity for reconciliation.

In India, the community-centred approach to local issues adopted by gram panchayats, through informal mechanisms, promotes reconciliation and relationship building. The Alternative Dispute Resolution Centre in Chennai has been involved in enhancing similar goals of justice outside the criminal justice system. Initiatives to restore justice could draw from such indigenous approaches to ensure an accountable and efficient functioning of the state-centric judicial system.


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