The Hindu Business Line : ‘Liquidity glut in debt markets can hit common investor’

Hyderabad, Aug. 7 The recent liquidity glut in the global debt markets, including that of India, may hit ordinary investors like pensioners , according to Prof Raghuram Rajan, Eric J. Gleacher Distinguished Service Professor of Finance, Graduate School of Business, University of Chicago.

Delivering a lecture on the ‘Liquidity glut in the markets’ at Indian School of Business here, Prof Rajan said the situation was the result of a mismatch between increasing earnings and investment. “Notwithstanding the worldwide income growth, the investment is largely restrained. This glut is particularly pronounced in the debt markets.” .

However, the fundamentals of global economy were on a sound track and there could be no possibility of a worldwide recession in the backdrop of downward trends in the US sub-prime mortgage market and appreciation of some currencies.

“Going forward, the savvy players will get out faster from the debt markets. A few banks could also be hit but not totally destroyed. But an ordinary investor like you and me and a pensioner could be caught unaware.” . The interest rates were likely to climb soon, he added.

Responding to a question on investment policy of India, he said India should set out reliable frameworks to convince the global investors about the safety of their moneyin the country,

Proper frameworks must

“We have not fixed proper frameworks for convincing global investors on the profitability of investment here unlike China which has scored over India in this regard.”

Giving the example of regulating petrol prices in India, he said: “You have sold some shares of these public sector companies to the private investors. How can you force them to reduce the price?”

For fixing the frameworks conducive for foreign direct investment, “hard political decisions have to be taken,” Prof Rajan said.

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