Saving,Lending and Interest Rates: A Critique (of the Model) of Financial Liberalisation in India

The case for financial liberalisation is founded on the neoclassical proposition that savings causes investment and that the interest rate tends to move to equate the two. We find little support for this thesis from the experience of India. Alternatively, we suggest that the Post Keynesian approach that includes the liquidity preferences of banks might be a fruitful way to examine the dynamics of an economy in transition.