Growth was surging along at 9 per cent. Fiscal deficit was on the mend. The rupee was appreciating and asset prices were rising. There were inflation pressures but the general perception was that inflation was a problem of success, not of failure.
Most importantly, we thought we had “decoupled” – that even if advanced economies went into a down turn, emerging market economies will not be affected because of their improved macroeconomic management, robust external reserves and sound banking sectors. 12. The crisis dented, if not fully discredited, the decoupling hypothesis. It affected virtually every country in the world, including India.