Let there be no doubt now: It’s here.
The problem that started with the subprime mortgage in the US in the summer of 2007 has spread into every nook and cranny of the Western financial system. And it has, of late, leapt across oceans to hit Asia.
India has not been able to avoid the contagion—as is only to be expected for an economy that has growing trade and capital links with the rest of the world. Mint was never impressed with the vacuous belief that we would decouple from the rest of the world.
What now? The flurry of policy decisions this week shows that the authorities know there is a problem— and are trying to counter it.
The economy will slow. Corporate profits will get hit. The stock market will be in the dumps. But the bigger threats right now are from an exodus of foreign capital or a run on the rupee or an external payments crisis.
The first move now, to use a chess term, is to castle the economy against capital flight and liquidity squeeze.