India bounced back from 2008 crisis thanks to stimulus packages, but faltered by letting these continue. And it still has a long way to go in ensuring greater coordination between govt and financial regulators.
India did not have a rulebook to refer to a decade ago when it was hit by a seismic shock with its epicentre some 12,500 km away. In the initial days post the Lehman collapse on September 15, 2008, many in the government did not think much of the crisis. The growth euphoria of the previous years had led to a widespread notion that the Indian economy was decoupled from that of the developed world. But within a fortnight, then Finance Minister P Chidambaram had to re-engineer an aircraft that was flying high. Manmohan Singh, the Prime Minister then, was to Chidambaram what P V Narasimha Rao had been to him during the 1991-92 crisis. He has not got due credit for steadying the boat, and ensuring a quick recovery. But soon enough, India faltered.
One big fallacy: That India’s growth story is its own
High-growth periods have a tendency to obfuscate facts. Since the Asian crisis of 1998, India has integrated more and more with the global economy. In fact, the high — almost double-digit — growth rates recorded during the four years from 2004-05 to 2007-08 were also a period when the global economy rode a crest, growing an average 4%-plus in calendar years 2004 to 2007. India’s stellar performance was aided by a boom in exports, which jumped an average 25% every year on the back of robust average global trade growth of 8.6%. In 2009, global trade dropped 11%, and India’s exports plummeted 16%. Over the decade since the crisis, India’s dependence on international trade has not waned much. Its two-way trade (exports plus imports of goods and services) as a percentage of the GDP hit a high of almost 56% in 2012, before dropping to 41% in 2017. Trade data since 2010 suggests that India does better than the world when world exports in goods and services are rising. We live in a connected world. A credit squeeze or a withdrawal of credit from the global markets will hurt the country irrespective of its credit-worthiness.
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