Jha, Veena; (1990) Transfer of private capital to developing countries: With special reference to India in comparison with Brazil. Doctoral thesis (Ph.D), UCL (University College London).

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Abstract

In the 1980s the pattern of external capital flows to India has changed substantially, concessional lending from international agencies giving way to private external sources of funds. The literature on Indian development and finance is vast, but there has been no study of these newly-important private capital flows. This shift in sources coincided with both a change in development policy on the part of the Government of India (GOI) and changes in external circumstances. The GOI relaxed the policy of self-reliance in 1982, deciding consciously to embark on a growth strategy that could require resources beyond what was available from domestic sources. In 1985, at the beginning of the Seventh Five Year Plan, it was decided to borrow from private external sources in order to fulfil a more ambitious plan of growth and technical upgrading. This strategy of growth-cum-debt was just confirmed in the Eighth Five Year Plan. Also in 1982, mainland China was admitted to the United Nations and thus became a contender for World Bank Funds, on which India's earlier development strategy had heavily relied. The GOI and its agents have negotiated loans, from private external sources in much the same way as they negotiated concessional loans, and they guarantee loans which are onlent to private firms in India. Thus from the lenders' point of view these loans have the same character as sovereign loans. So far, at least, India has been very successful in attracting private capital. In order to determine why this has been the case and whether the flows are likely to continue, the factors affecting each source have been examined in detail. These factors include GOI policy, market forces in the competition for funds and the location of industry, and the overall performance of the Indian economy. An important aspect of GOI policy is to restrict foreign borrowing to financing the foreign exchange component of projects. Despite this prudent approach, however, there is some evidence that India is heading towards a debt trap. A comparison with Brazil's debt position has been made in order to develop likely scenarios, based on Minsky's threefold classification of indebtedness. India's debt position is likely to develop along the same lines as Brazil's, though on a much-reduced scale.

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