No one is happy when bubbles happen and they burst. But to turn our backs on financial sector reform would be a retrogressive move. Remember that the British were able to prevail over the French in the 1700s because a well-developed London capital market enabled the British government to raise loans efficiently at modest cost. The French who even in those days were enamoured with state control were unable to do this and they descended into fiscal paralysis. We need a modern, open, transparent financial system. Along with this come some risks. Risks associated with “irrational exuberance” and “animal spirits”. When these get out of hand, we have the occasional crisis. But without these risks, we will have no growth, no prosperity. In the pursuit of risk-reduction we may end up with an outcome of too little risk-taking. Medieval Hindu society was dead set against risk. Individuals were supposed to follow the occupations of their ancestors and not try out anything new, anything outside of tradition.

They were not even encouraged to travel abroad. We certainly had a stable low risk society. Please note: such stability is synonymous with a stagnant state of affairs. Is that what we want going forward?

It is a delicate balancing act to ensure that as a country we tread a path that makes sure that entrepreneurial risk-taking and an exuberant financial system co-exist with regulations of transparency and sobriety — but not rules that strangle and stultify. We must not repeat the mistake of the ‘50s and go in for a permit-licence raj in the financial sector. Western capitalism will live through the present crisis and ten years from now global stock markets would have recovered and climbed new heights. If we straitjacket ourselves by stopping the engine of financial sector reform, once again we will be left behind by the Koreas of tomorrow and once again we will postpone by several generations any possibility of eliminating “garibi” in our land. In these challenging times our political leadership should have the courage to reform steadily and with steadfastness.

... contd.