A self-inflicted slowdown

These are times when John Maynard Keynes has become topical again. First, we are back to discussing the Bretton Woods system, the IMF, flexible exchange rates, a World Financial Organisation (WFO), a global central bank, Bancor (proposed international currency) and a global clearing union. Second, we are back to depression, recession and fiscal policy, away from supply-side economics. In the aftermath of the East Asian financial crisis in 1997, countries like Indonesia and South Korea were cajoled by the IMF to close banks and financial institutions and raise interest rates to exorbitant levels. In contrast, now that it has happened in the West, bailouts and quasi-nationalisation of banks and financial institutions are the norm. "Much of what Keynes wrote still makes sense. You will see us switching our spending priorities to areas that make a difference housing and energy are classic examples where people are feeling squeezed. What I want to avoid is getting ourselves in a position governments have done in the past, where you face an immediate problem and cut back on the things the country will need in the future... we can allow borrowing to rise." No, this isn't a quote from Manmohan Singh, P. Chidambaram or Montek Singh Ahluwalia, though it could well have been.

This is a quote from British Chancellor of Exchequer Alistair Darling, when he unveiled an expansionary fiscal package in October, a quote that would have been unthinkable two years ago. The non-economist may well wonder about economists possessing divergent points of view, unaware that the origin of this joke is also Keynes. Winston Churchill had said, "If you put two economists in a room, you get two opinions, unless one of them is Lord Keynes, in which case you get three opinions."

That's the background against which one should consider recent Indian monetary policy (repo and reverse repo rate cuts) and fiscal policy (additional Plan expenditure of 0.4 per cent of GDP, Cenvat cut of 0.17 per cent of GDP and export incentives of 0.2 per cent of GDP) announcements. Monetary policy was loosened earlier and there could be more fiscal measures (home loan packages). How has

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