FOurth, the world has turned out to have become much more intertwined than experts had pronounced it to be. Economies are much more inter-linked, sectors within an economy like India are much more interdependent than had been presumed. How contrived the declarations of October/November last year look just four/five months later – that our economies will not be affected as the “fundamentals” of our economies are strong, as our economies are, in effect, “decoupled” from western economies. Our economies are linked to others through exports of goods as well as services, through remittances, through foreign inflows – through monies that have come in for arbitrage even more so than as direct investment. But more than any of these, our economies are linked with those of US, Japan and Europe through that all-pervasive intangible – confidence. Yes, particular banks and firms have been thrown into difficulties. Yes, there is shortage of liquidity. But the real blow has been to confidence – that is the tsunami that has traveled all the way to our shores. Till confidence is restored, things will not begin to turn around. And notice that as yet, the 4 trillion dollars notwithstanding, nothing that the governments of the US, Europe or Japan have done has shored up confidence.

That is one reason why the periodic declarations, “We expect recovery from the third quarter of 2009/ from the first quarter of 2010…,” are just that much whistling in the dark.

In spite of the scale of the breakdown; in spite of the pace at which wealth has been destroyed; in spite of the fact that nothing that has been done thus far – and what has been done this time round is far greater in magnitude than in any other crisis in decades – has shored confidence, in spite of these features, government after government has underestimated the impact that the crisis is certain to have on its economy. Indeed, several governments – and the Government of India is a prime example – have been in denial. The tsunami has hit countries successively. But, till the penultimate moment, each has convinced itself that the tsunami has passed at a safe distance.

... contd.