We should now be entering a new age of modesty.

India’s chief statistician Pronab Sen made an interesting observation in an interview with Mint. He said that the 12 months after the collapse of investment bank Lehman Brothers on 15 September 2008 have shown us “what is feasible" in terms of the financial sector and economic growth.

Illustration: Jayachandran / Mint

Sadly, in the rush to announce that the bad times will soon be over and things will return to normal, there is not enough introspection about what “normal" means. It is merely assumed that normal means what we have just left behind.

The stock market is already giddy with exhilaration. There is a lot of talk about a V-shaped recovery the world over. Even a fine economist such as Prime Minister Manmohan Singh has spoken of how India can sustain growth at 9% a year.

One has to understand that what we have just come out of is not another golden age of capitalism, but one of the great credit bubbles in human history. Few realized this at the time because excess credit growth did not spark off inflation as it is traditionally understood—a rapid rise in the prices of goods and services. Instead it was asset prices that soared.

The return to normalcy thus may not be what we left behind in 2007: economic growth in excess of 9%, credit growth of 30% a year, corporate profits doubling every three years, stock market valuations that were unhinged from fundamentals and easy leverage because of rock-bottom interest rates.

The recovery is likely to take us into a more modest zone, with economic growth of 7.5-8%, a good 2 percentage points below what was habitually assumed to be India’s sustainable growth rate during the recent boom.

That compares well with what the rest of the world will manage, but will be less than what is needed to launch a frontal attack on mass poverty in India. Those missing 2 percentage points of growth are not lost forever, but it will be difficult to regain them as long as the government carries on its business as usual. The government must stay focused on the basics: be open to trade, regulate oligopolies, maintain fiscal discipline, cut red tape, and so on.

In short, a combined fiscal and monetary push helped India stay on an even keel in the face of the global financial storm. But it will need a reforms push to ensure that economic growth gets back to poverty-busting levels.

How strong will India’s growth be as the economy recovers? Tell us at views@livemint.com