I am Angy Arnold associated with academics for more than 10 years. I have held a number of teaching positions during my career. Currently, I am teaching in one of the best Universities of UK. I worked as research assistant for the Efficiency and Productivity Unit, counts for the performance of Airline Industry all over the world. I believe in longevity and loyalty which makes me patient and allow me to learn every moment new things. I am someone who enjoys anything that is intellectually challenging. Therefore, I specialised in finance and started my career in it because it requires hard work to show the performance. Moreover, finance jobs involve a combination of intuitions and analytics and I feel comfortable with rapidly changing environment where the tasks changes very quick because it requires you to be very vigilant about the surrounding environment.

Ten reforms of John Williamson as the starting point and turning to financial liberalisation afterwards illustrating the positive effects of financial liberalisation on Indian economy.

Abstract
This essay explains ten reforms of John Williamson as the starting point and turning to financial liberalisation afterwards illustrating the positive effects of financial liberalisation on Indian economy. Liberalisation whether its economic liberalisation or financial liberation is easy to utter, but it takes decades to actually get the results of these reforms and no one can be sure that still these reforms work globally or not.

Introduction
Globalisation means the anthology of strategy connected with capital itinerant, multinational and free trade and worldwide cause. (Thomas I. Palley: 2007).

Ruud lubbers define globalisation as “a process in which geographic distance becomes a factor of diminishing importance in the establishment and maintenance of cross border economic political and socio-cultural relations”. Anthony Giddens a great sociologist explain globalisation as “decoupling of space and time”, accentuating on the immediate assess of information and civilization worldwide. (Globalisation guide)

According to globalisation guide in 1998, 2822 academic papers and 528 book define globalisation in there own ways.

According to Business dictionary, globalisation means aperture of new view point regarding free trade, merchandise and recourses globally. It means the inter-connection of different economies worldwide. (Business dictionary)

Washington consensus idea was put together to create an energetic programme to help Latin America and other developing countries to grow fast and able to face cross-border competition. In this gaze at, Financialisation is the main worldwide element that focuses on the eradication of financial controls and heartening of financial markets. (Thomas I. Palley: 2007)
Financialisation, Financial liberalisation, neoliberalisation, privatisation all have there origin from the word globalisation.

The essay proceeds as follows. Section 2 gives a concise overview of Washington consensus and its 10 policy reforms as given by John Williamson and a few views of critics about those reforms. Section 3 explains several key aspects like Neoliberalisation, Privatisation with empirical evidence from Peru, Financialisation. This section mainly provides the basic information about all these concepts. Section 4 covers Financial Liberalisation with empirical evidence from India. The object behind selecting India as an example to state affects of financial liberalization is that India is one of the emerging markets and there is a wide scope of investment. This section is endowed with some facts and figures of other developing countries by way of graphs and charts to demonstrate the positive effect of financial liberalisation on there economy., finally, section 5 concludes.

WASHINGTON CONSENSUS
“It was in this era of sweeping political change, when capitalism appeared triumphant and the Cold War was almost over, that economist John Williamson coined the term “Washington Consensus” to describe a set of market oriented reforms that the sluggish state directed economies of Latin America could adopt to attract private capital back to the region following the crippling debt crisis of the “lost decade” of the 1980s. As Williamson explained, 10-point policy package was originally designed as a reform agenda for Latin America; it quickly became seen as a model for the wider developing world. It emphasized macroeconomic discipline, a market economy, and openness to the world economy (at least with respect to trade and foreign direct investment)”. (Jeremy Clift; September 2003; 9)

Washington consensus is often seen as tantamount with neoliberalisation and globalization. Williamson originally coined the phrase in 1990 “to refer to the lowest common denominator of policy advice being addressed by the Washington-based institutions to Latin American countries as of 1989.” According to John Williamson, “Washington Consensus was originally formulated not as a policy prescription for development, but was a list of policies that were widely held in Washington in 1989 that were desirable for implementation in Latin America”. (John Williamson el at; 2004)

Washington consensus was all about below stated Ten Reforms which was suggested by John Williamson keeping in mind the condition of Latin America and other developing countries like India, Argentina, china, Malaysia and turkey.

These reforms are as follows:

1. Budget deficits should be controlled by price stability and without restoring to the option of tax rise.
2. Public expenditures should be redirected to areas such as education, infrastructure and health which would generate more returns.
3. Taxes the source of funding public expenditure be raised without falsification. Broaden the tax base.
4. Financial liberalization with definitive goal of market determined interest rates to improve allocation of investment.
5. Unified exchange rate so that the exports will be encouraged to will result in overall growth.
6. Eliminate blockades to give way to foreign direct investments.
7. Reinstate trade restrictions by tariffs.
8. Privatization of state possessed ventures to have more efficiency, transparency and profitability.
9. Eradication of policies which confines competition and do not allow new entries in the industry.
10. Legal systems should be powerful enough to provide secure property rights without extreme expenses.

Budget deficit reform was criticized by economist Joseph Stieglitz that in real world the reasonable price mount has no effect on growth and had no serious upshot.

Another critic was that Williamson had the exaggerated price stability rather than real economy stability.

Washington consensus reforms highlighted the need for the free trade market with liberal regulations so that there should be perfect competition which would enable the developing countries to overcome there financial deficits. These policy reforms use the words liberalization, neoliberalisation, Financialisation, financial liberalization and privatization. I have tried to briefly bestow the meaning of all of these concepts before actually talking about financial liberalization and effect of it on different economies.

Key aspects of Liberalization:

Liberalization is the reduction in the control measures which in turns result in to more transparency, flexibility, right prices and increased competition. Simply, liberalization can be quoted as increase in competition and decrease in monopoly powers.

Neoliberalism was to achieve law and order, macroeconomic stability and basic infrastructure. The neoliberal thinking was based on the principle of ‘getting the prices right’ which in turns want to decrease the intervention of states in the economy in the shape of trade liberalization, privatization and lifting exchange controls. “Efficient allocation of resources would be guaranteed by relative prices determined through the impersonal forces of the free market”.

Privatisation is the process of relocating chattels public ownership to private ownership. The characteristics of privatisation seem to be more efficiency, proper cost maintenance techniques, enhanced foreign direct investments and hoist government revenues.

Privatisation in neoliberal political economy: An example from Peru (developing Country).
As earlier stated that during neoliberalisation the state interventions were reduced and privatisation was expected to offer new means for the restructuring of the decomposing state infrastructure. Electricity market reform was looked upon as a hope for better admittance to electricity.

“Peru embraced neo-liberal market reforms in the electricity sector in the early 1990s, as part of a broader economic restructuring. Electrification levels increased rapidly after reforms began from 45 percent in 1992 to 75 percent by 2002. [7] MEM, El Plan de Electrificación Rural (Rural electrification plan), Ministerio de Energia y Minas, Lima (2002)<www.minem.gob.pe/dep/>.However, electricity services remain a predominantly urban phenomenon. Over 15 years after starting market reforms, in many rural areas the percentage of electrification achieved is not higher than 30 percent. This is particularly significant since Peru is already one of the world's most unequal societies in terms of income distribution, and poverty is a prevalent feature of rural areas”.( Judith A Cherni and Felix Preston;2006 )

At the outset the electricity reform demonstrated an increase of 57 percent to 75 percent in electrification ratio within the period of 10 years (1993 to 2002)

It’s not the question that who owns what? Reforms should give answer to the needs and the priorities of the poor. The electricity reform in Peru toil well primarily but, afterwards the growth rate slow down because of the increasing marginal cost and because of this inequality, public displeasure aroused to 71 percent in 2004 and privatisation programme was stopped. (Judith A Cherni and Felix Preston; 2006)

Financialisation: What does actually the term Financialisation means? The depth of the word Financialisation is immeasurable. It is a wider term which actually defines the maneuver of the economy. According to me it’s very important to know the term Financialisation before knowing about financial liberalization. Financialisation means financial approach towards economic philosophy. “Financialisation means a shift in gravity from the real economy (production centered economy) to financial speculation” (John Bellamy Foster: 2008) In simple terms Financialisation means emphasized financial markets, investment management, amplified shareholders wealth. The rise in ‘household debt-income ratio and corporate debt-equity ratios’ signifies growth and development till the economy is susceptible to ‘debt-deflation and prolonged recession’. (Thomas I. Palley: 2007) Empirical evidence: In the monthly review of Global Financial Stability Report, September 2006, IMF Executive Board of directors articulated qualms that “rapid growth of hedge funds and credit derivatives could have a systematic impact on financial stability and that a slow down of the U.S. economy and cooling of its housing market could lead to greater financial turbulence which could be amplified in the event of unexpected shocks”. (John Bellamy Foster: 2008)

Financial liberalisation

Financial liberalisation one of the strong pillars of Washington consensus:
“Financial liberalization is an extremely important component of a successful development strategy. If financial deregulation is implemented in isolation, it is unlikely to promote growth and may, in fact, impede economic development. The importance of achieving macroeconomic stability prior to reform is well known, yet structural reform and institutional development in the financial sector, especially prudential financial supervision, are equally essential as liberalization proceeds”. (Haw Pill and Mahmood Pradhan)

Financial liberalisation in simple terms means reduced interest rates, more investments, liberalised policies towards foreign investments, less government intervention and established financial markets as one side of the coin and if we look at the other side of the coin, we’ll see more risk, chances of financial crises as inequality will increase and creates financial feebleness.

Below given is the list of dates of financial liberalisation in 22 countries.

According to Peter Lawrence and Ibotombi Longjam (2003), there are four meters that characterise a well developed financial sector and that four meters are as under:

• Private credit signifies as PVCRD is equivalent to worth of financial intermediaries’ credit to private sector ratio of GDP
• Liquid Liabilities signifies as LLY, it’s the aggregate of liquid liabilities of financial system and its currency including the demand and interest bearing liabilities of intermediaries to GDP.
• Commercial bank assets vs. central bank assets signify as DMBCB. This is the percentage of assets of commercial bank to total assets of banking sector.

Stock market capitalisation to GDP ratio signify as STCAP, it’s the ratio of value of listed shares to GDP which indicates the power of the stock market to risk diversification and impact on economic growth.

The above chart shows India’s recital to these four indicators during the period of 1980 to 2000. DMBCB illustrate rising trend which means that policy reforms in banking sector after financial liberalisation has positive effect on the economy. STCAP’s extraordinary growth signifies the efficiency of financial markets. The graph shows that there is no much improvement in private credit and liquid liabilities. (Peter Lawrence and Ibotombi Longjam: 2003)

SIGNIFICANT FINANCIAL SYSTEM REFORMS IN INDIA SINCE 1991
According to Mckinsey & company following are the reforms in different sectors of the Indian Economy since 1991:

BANKING:
In 1992 the Statutory Liquidity ratio was 37% which reduce to 25% in 1997. Statutory liquidity ratio is the quantity banks have to uphold as cash, gold and approved securities. Cash reserve ratio decreased from 15%in 1992 to 5% in 2006. Cash reserve ratio is the proportion of banks reserves towards deposits and notes. Banking sector share to total market is 22% including 31 foreign banks, 20 old private sector banks and 9 new private sector banks.Capital adequacy, income recognition and asset allocation came under prudential reforms using international Benchmark.

EQUITY MARKET:
SEBI Securities and exchange board of India was established in 1992 with the sole purpose of focusing on securities market.NATIONAL STOCK EXCHANGE start trading in 1994 as a national platform to match electronic orders from anywhere in the country.

INTERMEDIARIES
Mutual funds: investment in overseas allowed in 2003 but capped to 10% of assets under management. Insurance: In 2000, insurance sector was opened for private entry, before 2000 LIC was the only operator in insurance market. FDI was capped at 26%. Pensions: still state owned with regulated returns.

India’s financial reform does not showed much progress with in the period of 1991 to 2001 but afterwards there was uplifting of Indian economy when GDP arose from 108% to 160% in 2004 however, tranquil, the growth is not in comparison with the fast growing economies like china, Russia, Brazil and South Korea.( McKinney &company; 2006)

Global funds surge in Indian economy (Foreign Direct Investment)
Because of financial liberalisation foreign investments were allowed to gush in Indian economy. “Flow of funds from foreign institutions investors increased six times during the period of 1993 to 2004. In 2004 there was 8.7 billion $ of net inflow in equity market and $3 billion of net foreign direct investment” (McKinsey Global Institute 2006; 34)

Apart from above India’s banking and financial sector reforms, India progressed in many other fields also like IT, Pharmaceuticals, automobiles, research and development, healthcare, entertainment and real estate. Scribd; group 7 in their report; India Trade before and after Liberalization provided facts and figures about some of these areas are as follows:

• Kearney’s FDI confidence index report promoted India from 15th position in 2002 to 6th position in 2003 as a most attractive destination worldwide and in service sector India was promoted from 14th in 2002 to 4th position in 2003.
• In 1990-91 Indian foreign exchange reserves were 2.2 billion US$ which amplified to 118.3 billion US$ in 2003-2004. Similarly Foreign investments showed a sharp upward movement from 103 million US$ in 1990-91 to 15872 million US$ in 2003-04.
• Custom duties on imported manufactured goods were reduced from 150% in 1991 to 20% in March 2004 which illustrate a great benefit of liberalisation.
• General motors, Toyota, Daimler Chrysler, ford, Hyundai are some of the examples of major auto manufacture who are manufacturing in India. India is second largest in small car market and scooter and tractor manufacturing.
• In 1992-93 the production of four wheeler vehicle was just 671928 in number which amplified to 1263764 in number in 2003-04 and combined 2,3 and 4 wheeler export increased 300% within the period of 9 years from 1992-93 to 2001-01 which signifies the positive impact of financial liberalisation on Indian economy.
• 100% FDI is allowed in power sector (electricity generation, transmission etc), real estate (integrated townships), oil and gas (exploration and lying pipelines), projects for the construction and maintenance of roads, bridges, ports.

India Hallucination (Vision):
Goldman Sachs (2003) in its BRIC study prophesy about India that India will beat

• France’s GDP in 2020,
• Japan GDP in2035,
• Germany’s GDP in 2025

Impact of Financial Liberalisation on Emerging Equity Markets:
Liberalisation of equity markets enhances financial growth and liquidity. Development of equity markets attracts more foreign investors who demand corporate governance and lucidity. The below given chart illustrate the official equity market liberalised dates which means when the government liberalise the rules and regulations related to equity market. There is a close relationship between economic growth and developed financial markets.

"If one examines economic growth in emerging markets before and after financial market liberalization, the results suggest that financial market liberalizations are associated with higher real growth." (Matthew Davis)

Economic changes in developing countries because of financial liberalization:
Graph 1 to graph 16 shows “the ratio of estimated U.S. equity portfolio holdings to the market capitalization of the Morgan Stanley capital international 2001 indices for each country”. Graph shows “BH official liberalisation date, date associated with first country fund or ADR and estimated break date” with some other factors that affect the overseas attention. Noted point about U.S holding is that it does not represents the complete holding by U.S. residents as MSCI indices just represent 50% to 70% of total market capitalization. Here 25% U.S. holding means 15 %( 25% reduced to 60%).

Graph 1

Graph 2

Graph 3

Graph 4

Graph 5

Graph 6

Graph 7

Graph 8

Graph 9

Graph 10

Graph 11

Graph 12

Graph 13

Graph 14

Graph 15

Graph 16

In the above given graphs of 16 countries, most of the countries shows development because of foreign direct investments coming into the domestic market But its really difficult to find out that whether these foreign investments are adding to the economic growth of the country or not.

Figure 1

Figure 2

Figure 1 and 2 reveals that the percentage of economic growth (crises period also included) subsequent to financial liberalisation in 20 countries over the period of 1980 to 2000. Investment intensification in most of the countries is quite good except Zimbabwe that shows the negative investment rate, the reason behind can be political disorder.

Limitations
The chosen essay is not devoid of limitations. Financial liberalisation on India is being covered as an empirical example, because of words constraint. Further added to this, even India is not being fully covered, impact of financial liberalisation on poverty, standard of living, agriculture, real wage income, woman and structural changes left untouched. But, somehow with the help of charts and graphs, I’ll able to give a brief outline of financial liberalisation in other developing countries.

Conclusion
According to Williamson, Washington consensus was level-headed but unfinished reform programme which helped developing countries to grow. Financial liberalisation suggested as one of the ten reforms of Washington consensus was to reduce the trade regulations and allow FDI’s into the domestic market. No doubt it achieved the purpose of growth and development of developing economies but also increased the inequality among people. Financial markets today play a vital role in the economy of the country, liberalisation has further loosen up the knots, but x appropriate steps should be taken time to time to reap the fruits of financial liberalisation.

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