There is one clear lesson for India from the three large economic trouble spots today: no economy can get back on track without structural reforms.
Consider what is happening in Greece, China and Japan. Each has had liquidity support from its own central bank or from multilateral lenders. Greece was forced to embrace austerity while the two Asian giants have splurged to support effective demand. But economists have warned right through that there has to be a third element to the strategy: economic reforms.
The Indian policy debate gives too much importance to demand stimulus, either through higher government spending or lower interest rates.
The fundamental flaw in such a strategy is that it seeks to deal with a structural slowdown with cyclical policies. Stimulus helps in the short run, but then the economy reverts to its new normal.
Just look at what is happening in China right now.