Do rigid rules like the Stability and Growth Pact or the Fiscal Responsibility and Budget Management Act help?
Things like the EU’s Stability and Growth Pact and India ‘s own Fiscal Responsibility and Budgetary Management Act do help because they instill a certain amount of discipline. Many emerging markets follow pro-cyclical policies in good times like now; in bad times they are forced to really cut back. And this is exactly the reverse of what they ought to be doing. In good times they should be saving for a rainy day, in bad times you can’t borrow any more and you get shut out of markets so you can’t spend precisely at the time when people need these expenditure. We keep telling people that the good times are when you prepare for the bad but the tendency is to say the bad times are not going to come in my tenure and since the good times are here, let me not spoil it now. What are the other major concerns on the global economic front? The US current account deficit is a concern that calls for movement on a number of fronts. To begin with, we need a mix of private saving and reduction of gove
