From FY09 to FY13, real GDP growth averaged just 2.8 percent; this increased to above 4 percent over the next three years. In fact, real GDP growth touched an eight-year high in FY16. Meanwhile, the government’s ongoing fiscal consolidation efforts limited the average budget deficit to 4.6 percent in FY16, against 8.2 percent in FY13.
However, we are still very much short of having a satisfactory macroeconomic theory that deals adequately with complex and sometimes violent financial markets. Consequently, the very definition of macro-prudential policy remains elusive, even three years after the crisis. How are we to draw the lines between macroeconomic, macroprudential and micro-prudential policies? What indicators are useful in detecting risks?