What leads to a rapid worsening of the fiscal balance is not, as is commonly believed, the cost of bailing out financial institutions. Rather, it is the drastic decline in tax revenues as a result of output contraction and the ambitious fiscal stimulus package aimed at kick-starting the economy that cause fiscal deficits to explode, says Vidya Mahambare.
The recent financial crisis and prospects of a prolonged downturn in global economic activity have once again invigorated the critiques of global financial integration and free trade.
An independent central bank, free from political interference, is in the best position to ensure low and stable inflation over time.
It was the actions of domestic borrowers and not FIIs that made the rupee appreciate.
Rising productivity and product diversification ensured high export growth in the past.
India is in a state of structural balance of payments surpluses, with the foreign exchange inflow substantially exceeding the demand for it.
It may begin that way with, say, supply shortages in farm products due to adverse weather, but if monetary policy is eased to accomodate this, the effects become permanent.
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