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India and the Global Financial Crisis THIS book is the need of the time when the world economies are reeling under the worst kind of financial meltdown that emanated from the US. Though the recession started brewing in 2007, it burst in the last quarter of 2008 when big banks like Lehman Brothers with worldwide operations became bankrupt. To date, more than a thousand banks/financial companies have lost their feet in the US. This is despite the Federal Reserve pumping millions of dollars for their rescue and take over by the government. It is the worst economic crisis after the one gripped the world in 1930-31. The crisis is so intricate that economists are still debating its reasons. Much of the blame is put on the lax controls of US financial institutions. The author has elaborated the reasons behind the crisis in a lucid manner.
Of the global financial crisis, the author has reasoned that some countries, notably the US, built large current account deficits. Some other, notably in Asia, built significant surpluses in current account and lent or invested in the US. Since these recurring imbalances persisted and increased over the years, correction was warranted by the markets. The much-cherished sub-prime lending was only one of the symptoms of the lack of aggregate demand as the median wage was constant. The monetary policy, especially in the US, was much accommodative. The money supply was in plenty and due to low interest rates, it find its way into speculative activities causing assets bubbles. There was no formal mandate to maintain financial stability. The result was a huge crash. The Central Banks ignored all these angularities occurring in the economy and failed to act timely. The multilateral institutions like the IMF did give warnings of the macroeconomic imbalances in big economies but who would listen, as the IMF likes are dominated by these select economies. Similarly, the author has brought out the macroeconomic conditions of the crisis in the Indian context: how the crisis hit India and how and why it escaped with only bruises here and there. Indian economy has certain inherent strengths which would help in meeting the challenges ahead. A vast pool of science and technology graduates and millions of people who are familiar with English language and adapt better to the global situations are its strong limbs. India being the largest democracy of the world, existence of free media keeps the government in check and provides some insurance against excesses. Most importantly, India with half of its population being below 25 will remain the youngest country in the world. Given the proper skills, they will outwit any challenge in any field. The chapters Implications of Global Financial Imbalances for Emerging Market Economies, and Reflections on India’s Economic Development are richly informative and enlightening on the complexities of the economy. The book has been written in a lucid and explicit language, where the "teacher" in Y.V. Reddy comes apparently in harness. On the whole, the book is very informative.
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The
book is a collection of 23 select speeches delivered by the author at
important national and international forums during his stint as
Governor, Reserve Bank of India (2003-2008), which incidentally was
most eventful period for Indian economy that attained GDP growth up to
nine per cent and poised for two-digit growth. The country was also
trying to integrate its economic nitty-gritty with the global economy.
All these speeches are on different aspects of economy with particular
focus on Indian conditions. These are really a treasure trove of
knowledge of economy more so emanating from a person of Y.V. Reddy’s
experience and stature. He has held very high assignments in the
government such as secretary, Ministry of Finance; Governor, Reserve
Bank of India; executive director, International Monetary Fund, and
many more.