Author: Mehra, Puja
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The ten years from 2008 to 2018—the wasted decade as I call it—saw waning political will for reforms.
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These initial monetary and fiscal responses were designed by economic experts, with little interference of politics, in contrast with the way economic policy was formulated in the decade that followed.
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Early 2009, the Fed pledged to pump an extra $1 trillion into the financial system through a programme of buying treasury bonds and mortgage securities that became known as ‘quantitative easing’ or ‘QE’.
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By 2015, three phases of QE had streamed $4.5 trillion into the international financial markets.
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The joint secretary in charge of the capital markets division, K.P. Krishnan, explained that banning speculation wasn’t going to resolve the problem. 43 ‘You have very high fever. There are two options. One, take a paracetamol and sleep it through. Two, break the thermometer, and do not acknowledge that you have fever,’ Krishnan told Chidambaram.
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The government too often joined this chorus, believing that in a crisis situation, it was important to be seen to be doing something all the time to instil confidence in market participants.
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At the lowest level, reached three years later in October 2011, the RBI’s policy rate, at 3.25 per cent, was not zero in nominal terms, but given the inflation rate it was practically zero lower bound.
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Among the choices available, MGNREGA was the fastest and easiest way of putting money in people’s pockets.
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CRAR (capital to risk weighted assets ratio, a standard metric to measure balance sheet strength of banks)
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According to World Bank calculations, India’s economy needs to grow at 8 per cent and higher per year for the next three decades to join the ranks of middle-income countries.
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India had escaped the asset bubbles and the excess liquidity created in the Western economies by design, not chance.