A Roller-Coaster Ride

The Modi government did reasonably well in its first two years. Then came the twin shocks of demonetisation and GST and the Indian economy never looked the same again

- Prosenjit Datta

THE ECONOMIC PHILOSOPHY that guided policymakers in the decade of the 2010s was the antithesis of the reasoning that influenced the previous decade. The Indian government’s policy framework too swung from one extreme (free-market thinking) to the other (a command-and-control economy, with a bias towards socialism). Meanwhile, in the corporate world, one witnessed the bonfire of the vanities, as many old business tycoons borrowed heavily for unrestrained expansion—and then came crashing down. In banking and finance, sterling reputations, built over decades, were ground to dust. And a new breed of entrepreneurs came into the limelight—young engineering wizards using digital technology to disrupt old business models. With a free flow of dollars from enthusiastic venture capitalists, these newbies burnt cash and disregarded profits in a bid for scale and market dominance.

But let’s first look at why the policy pendulum swung back to a controlled environment. The first decade of the millennium had showcased both the rich possibilities and the worst excesses of the free-market philosophy, first articulated by Austrian-British economist Friedrich Hayek. The enthusiastic embrace of this thinking by governments and central banks alike led to an unprecedented boom, till the Lehman Brothers’ bankruptcy and the sub-prime crisis sent the world reeling into a financial meltdown in 2008.