Reddy in the Reserve Bank and Shri Montek Ahluwalia as Finance Secretary have helped establish the autonomy of monetary policy in India, free of fiscal policy compulsions. Experience over the last five years has shown that despite that autonomy, the degrees of freedom available for monetary policy management can be constrained by the Government’s fiscal stance.
While the world has witnessed recurrent episodes of financial crisis, global developments since 2007 have had a profound and multiple impact given the multi-dimensional nature of the ensuing crisis. First, the financial market turmoil in the subprime mortgage market unfolded itself in the form of an unprecedented global liquidity crunch triggering huge financial and economic losses.