From - Reviews, Vol I, Issue II
“Global Crisis, Recession and Uneven
Recovery” by Dr. Y.V Reddy, is written at a time when Indian economy is facing
several challenges in terms of slowdown in growth rate and increasing fiscal
and current account deficits as well as at a period when rate of inflation is
going through hike.
Today the crisis is over and recovery
has begun, but in a different way at different places. No doubt, the crisis has
affected almost all nations, but in distinct degrees. The book contains the
writer’s thread bare analysis of facts in a simple and lucid manner, which is
appreciable.
The book contains five sections, in
which there are 27 chapters. The sections relate to global financial crisis and
its impact on financial sectors, government policy, Indian economic performance
and prospects etc. While the first section of the book contains six chapters
which gives a vivid account of the financial crisis and its effects and
consequences. In the first chapter the writer deals with the role played by the
central banks during and after the crisis. He makes it clear that the crisis
will have to be shared between the central bank, ministry of Finance, and to
some extent, the Government as a whole. The author writes about the
consequences of the crisis, viz., rebalancing power between the regulator and
the regulated, shift in balance in favour of Asia, rise of G-20 on the global
platform and a cautious approach towards self-correcting efficiency of markets
etc. The causes of global financial crisis are discussed in detail, which makes
many doubts of the readers clear.
Second section of the book focuses on
the failure of financial sector with remarks about uncertain recovery as well
as the prospects of future. Highlighting the role of financial regulation in
developing countries, the author pin points that the causes and cross border
transmission of the crisis may differ significantly between developed nations
and between developing economies. There is an exclusive chapter on
countercyclical policies adopted by the Reserve Bank of India in financial
sector. It also highlights the proposal for financial sector regulatory reforms
from the viewpoint of developing nations. The author writes about the future of
globalization of finance as well as the global regulation of financial sector.
The last chapter of this section points out the broad framework for global
financial regulation.
The third section deals with the
challenges and responses of public policy that emerged during the current
global crisis. Dr Reddy, former governor of RBI, has pointed out the
feasibility of Tobin Tax and Financial Sector taxation in view of current
crisis. He has thrown some light on the developmental dimension of the
financial implications as well as fiscal implications of the global crisis. He
also highlights the macroeconomic frameworks that are emerging for ensuring
overall global financial stability.
The fourth section deals with the
concerns of the modern economic scenario especially the financial giant like
the World Bank, International Monetary Fund, as well as World Trade
Organization. The author has dealt with the recommendations of UN Commission on
the global crisis. He has also analyzed the G-20 framework and its future
prospects.
The last section of the book highlights
on India’s performance and prospects. He has pointed out the experience of
India in regulating the financial sector as well as the need for reform in
Indian financial sector. In another chapter of this section the author compares
the Indian situation with that of Asian economy and the world economy in terms
of recovery after the crisis. The final chapter which is the concluding section
draws attention to the strategies at the global and national level by the
financial experts, for bringing up the economic stability and normalcy.
Being a student of economics, after
going through this book “Global Crisis, Recession and Uneven Recovery” written
by the ex-Governor of RBI, I have gathered three important points: a) Global
Crisis, b) recession, and c) Uneven
recovery. I would like to share my understanding of these three aspects in the
following basic points:
The causes and consequences of Global
Crisis: - A number of reasons have been mentioned for the crisis that are:
failure of state, failure of market, failure of policy makers and intellectuals.
The author has mentioned that the crisis was originated due to multiple reasons
that reinforced each other. Extensive excesses on several fronts which have
occurred in a synchronized manner and ultimately precipitated the crisis. In
words of the author, “the excesses were observed in industrial sector,
macroeconomic imbalances, focus on inflation, inequalities, financialisation,
risk taking, financial innovation, deregulation, greed, globalization and
concentration.”1 These were the basic reasons for global
crisis.
He has pointed out the race to bottom in
regulation of financial sector as one of the most crucial reason for the global
crisis. He writes, “The excesses in financial sector occurred under a benign
public policy that believed the costs of regulation to be greater than its
benefits. Even the existing regulation was stymied by excessive innovation in
finance that aimed to avoid the prescribed regulatory capital and injected
complexity to undermine the rules of transparency prescribed by regulators”. 2
As far as consequences of the global
crisis are concerned, the author is of the view that current crisis will result
in rebalancing of ideological, institutional and operational functioning of
states and markets. He writes, “in recent years, there has been an almost
irrefutable presumption in favour of markets and this may be replaced with a
refutable presumption in favour of the markets.”3
The writer calls for redefining the core
banking and recommends treatment of commercial banking as a public utility. He
mentions, “Universal banking will be de-emphasized and narrow banking will be
emphasized. In brief, commercial banking is likely to be closer to public
utility than before, and subject to regulations akin to public utilities.” 4
As regards lesson from the global
crisis, the author suggests, “improving transparency and regulatory oversight
of hedge funds, credit rating agencies and over the counter (OTC) derivatives
should become a priority in the light of the experience from the crisis.”5
Further he writes, “ --- the
crisis is global, actions are national, benefits could be selective or
universal, but burden in the future may have to be largely borne by the masses
who bear no responsibility for the crisis, and those who did not benefit
materially from the events that led to the crisis.”6
Recession: In chapter 6, the writer
highlights the Great recession of 2009 in detail. He clarifies the concepts of
depression, recession and slowdown. A slowdown is a clear fall of the growth of
the economy. It is a short time phenomenon. Recession refers to a sustained
decline in the overall economic activity for a period of more than one year,
while depression lasts longer than recession and there is a larger decline to
business activity. It will have a bad impact on output and employment.
Uneven recovery: If the Great Recession
was uneven, so is the recovery, mentioned by the author in chapter 6 page 93.
He has pointed out several responses to the crisis at different places in
several chapters. He writes in chapter 4, “Initially the response of monetary
authorities, followed by fiscal measures, was confined to the US, UK,
Switzerland, other European nations and Japan. Later it was realized that it
was essential to involve other countries also in globally coordinated actions.”
Dr Reddy has pointed out five possible
patterns that could be followed by the countries in their course of recovery.
The highly resilient economies may observe rapid recovery from the crisis while
less resilient economies would require a longer time to adjust to the new
realities and ensure real recovery. While some economies may suffer from high
recession before complete recovery, some other countries may prefer taking
structural measures over a long period. Hence such countries adopted for slow
but positive system of recovery after recession. Some of the nations may adopt
a low level of economic activity for longer period and hence such countries
suffer from recession for a longer period than other nations of the world.
Comment: Dr Y. V. Reddy’s book is a path
breaking analysis of global crisis. But as a student of economics, I have
observed that this book was largely concerned with the role of Central Bank in
dealing with crisis as well as financial stability of nations. The role of
other agencies to deal with the crisis has been ignored by the author. The role
of Government has been ignored to some extent. However it is worth reading for
students, teachers as well as the policy makers who are interested in having a
complete idea of the global crisis.
1.
page
46, chapter-3
2.
page
59, chapter-4
3.
page
28, chapter-1
4.
page-78,
chapter-5
5.
page-172,
chapter-12
6.
page-63,
chapter-4
Reviewed
by Dr. S. K. L. Das
Head/ Department of Economics, P.K.Roy
Memorial College, Dhanbad Jharkhand
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