Heading into 2008, an increasing number (not a majority, but a sizeable enough minority) of Indians were beginning to feel that our 9% growth story was here to stay, like something that Moses brought down from the mountains.

There were troubling clouds in the skies, but there was enough clear blue visible all around the horizon. Companies across the board were bursting with confidence: Large Indian corporations were beginning to position for global scale, mid-tier ones began to transmit bigger ambitions within their ranks, and even small and medium enterprises were slowly overcoming their shackles. Hiring boomed across the board—banking, consulting, manufacturing, textiles, service industry. The labour market was a sellers’ market like never before in our history, and parents’ eyes bulged watching the pay cheques that their 25-year-old daughters were picking up as they threw up their graduation hats at IIMs. New malls were opening up, not just in the mega cities, but across small-town India. Even niche segments such as high-end luxury were becoming large enough to see traction— exclusive magazines, new product launches and boutique hotels became daily affairs. Middle-class India completely bought into the delicious idea of India becoming an emerging superpower. Even though Bric sounded like a thud, it felt like gold to be in exalted company—India was no more the perennial also-ran that we were for all our independent life, constantly being compared with Somalia and Ethiopia.

23 January: The benchmark Sensex rises about 1,000 points or around 7%—after falling for seven consecutive days. Rajesh Nirgude / AP

What a difference a year can make.

December and January were bookends to the economic story. Even as 2007 ended exuberantly, 2008 literally began a new bleak chapter. Everything pretty much went downhill from the start. The Sensex peaked on 10 January. Oil prices shot up, the US mortgage meltdown started spreading and pretty soon, the skies seemed to be filling up with dark clouds. There was no respite, as things got steadily worse with each successive month. One symbolic moment of the turbulent sentiment was when Jet Airways fired some of its employees: Their protest, and the immediate capitulation of management that followed, showed how tenuous this new-found relationship that Indians have with hire-and-fire free enterprise was. This of course isn’t anything evil, just the reality of economic sine curves. But not to Indians, having grown up on a steady diet of a maai-baapsarkar.

By the end of the year, with the relentless downward spiral, the real estate correction and the Mumbai attacks, all our spirit seems to have been sucked out. What a compressed time cycle for an education about the ways of market-based economics: That what goes up can come down dizzyingly fast; that jobs are not permanent; that housing prices can tumble and that bank recovery agents are not nice when you don’t pay on time; that survival shocks can hit the middle class as much as the poor.

To the average Indian, this is a time of tremendous dissonance and confusion: A failed state was already visible everywhere, and the markets were meant to be the panacea. But both seem to be deserting him. But underlying this turmoil is something fundamental, a complex clash of ideas about the architecture of the relationship between markets and governments.

Let me offer one example of the clarity we need to have: We need to distinguish the difference between free markets and financial markets. Free markets are about entrepreneurs, people who start off invariably as small business owners who hire from the ground up, maybe two, three or 10 people, and then grow from there. Most often, these entrepreneurs will never get to use the sophisticated tools of the financial markets, other than the typical loan from the neighbourhood bank. But that’s all they need, because they aren’t looking for more than their own appetite for risk, creativity and hard work to help them move up in life, and for government to get out of the way, set fair and transparent rules of functioning, enforce them correctly, reduce red tape and provide the necessary social infrastructure. The true engines of an economy are these entrepreneurs—big and small, but mostly small. Financial markets are about one aspect of facilitating this—and not the end-all of a free market system. They play a role, a critical role, but they are not the centre of the universe. In fact, 2008 showed that an overemphasis on financial markets, an over-monetization of economic activity can have devastating consequences.

As we stumble into 2009, wallowing in our incoherence, doubts are beginning to emerge: Was it so bad to have a socialist mixed economy model, where the government was a benevolent dispenser of licences and all else? Is the market-based economy all that it’s made out to be? Could it really be possible that the communists—God forbid!—actually had it right, that we need to keep markets on a tight leash; that slow and steady is a much better path than see-saw uncertainty; that the Hindu rate of growth isn’t a bad thing after all?

We face crucial national elections in a few months that can set the intellectual course on these issues for the next 5-10 years: What does the experience of the past year say about our positions on the role of enterprise and government in generating prosperity? It’s critical that millions of Indians engage in this debate. But first, we have to recognize that this is a new idiom for most of us—these are rapidly changing times and ideologically entrenched thinking won’t help, so we have to discover the vocabulary, much like children learn to talk—by speaking a whole lot of gibberish even as we practice, but learning along the way. The important thing for us as average Indians is to keep talking, thinking, correcting, and not let the intellectuals and politicians take over the debate.

Ramesh Ramanathan is the co-founder of Janaagraha Centre for Citizenship and Democracy.