In India, the lack of data, the changing structure of the economy (which makes comparisons difficult) and shorter memories have narrowed the historical search considerably and most people have compared the current crisis with the credit crunch of the late 1990s.

Also See Under Pressure (Graphic)

There are strong reasons for the comparison. Then, as now, several good years of above-average growth had led to an investment boom, with companies setting up capacities that counted on continuing rising demand. Falling investment and export demand have added to the earlier slowdown in consumer demand as the Reserve Bank of India (RBI) hiked interest rates to cool the economy. Then, as now, companies wailed about the lack of credit, as alternative sources of funding—the stock markets, foreign capital markets—dried up.

But there is one huge difference between the 1990s and today—the level of interest rates. In March 1997, according to RBI data, 75.4% of outstanding credit by scheduled commercial banks was lent out at interest rates of 15% and above. A decade later, that had dropped to a mere tenth of all outstanding loans.

Here’s another statistic: In 1997, loans that attracted interest rates of below 12% amounted to a trifling 3% of total credit outstanding; a decade later that had increased to 45.5% of all outstanding loans.

In fact, just as falling interest rates led to a global boom in the 1980s and 1990s, similarly, sharply lower domestic lending rates were responsible for the boom of 2003-07 in India, a boom that was cut short not just by the global financial crisis but also by RBI’s deliberate attempt to cool the conomy.

Thankfully, apart from a few weeks in October, lending rates did not go back up to the levels seen in the 1990s and they have since come down considerably. The lower interest rates mean that, on an average, company balance sheets will be under less pressure than in the 1990s.

Sure, lower interest rates will not avert the slowdown, but they could serve as a cushion against it.

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Graphics by Sandeep Bhatnagar / Mint