The first lesson is not to remain in denial. Governments must anticipate. They must react at lightning speed. They must overwhelm. The old adage is indeed apt: hope for the best but prepare for the worst. A lemma is: do not be lulled into relaxing your effort by blips: that in Pakistan’s case remittances have, in fact, increased a bit in the last two months may well be due to the fact that workers who are being laid off in the Middle East are repatriating their savings in one go; that automobile sales in India have gone up in January may well be due to some transient factors… Hence, instead of clutching at these straws, prudence dictates that we assume that developed countries will take five to seven years to return to the status quo ante, and devise our responses accordingly.

Nature of the stimulus
The view has been urged, “Our deficit is our stimulus.” Such claims are a symptom: the current crisis is being used by many governments, the Government of India is again a prime example, to cover up the results of mismanagement during the period preceding the crisis. Financial profligacy is what caused the deficits in India, for instance, not some prescience about the impending breakdown. Unchecked, poorly targeted subsidies on food and fertilizers; on petroleum products; a massive waiver of agricultural debts; pay rises for government staff – these three items are what pushed the combined deficit of central and state governments in India to over 11 per cent of the country’s GDP. Not only were these outlays way beyond what prudence would have allowed, they were grossly under-budgeted: the provision for food and fertilizer subsidies was at least a third less than what would manifestly be required; the POL subsidies were kept out of the Budget calculations all together; as were the outlays on the massive increases in governmental salaries.

... contd.