New issues in Indian macro policy.

Table 3 Changes in Indian macroeconomics

The old Indian macroeconomy

The new Indian macroeconomy

A sequence of agricultural shocks
rather than a conventional busi-
ness cycle.

A sharp drop in the importance
of agriculture in the economy,
and the commencement of a con-
ventional business cycle based
on the inventory/investment be-
haviour of firms that operate in a
transformed environment.

A closed economy.

A rapid movement towards an
open economy, with the removal
of trade barriers and onset of de
facto convertibility.

Deeply distortionary tax policy
coupled with a fiscal crisis.

Significant progress in easing dis-
tortions caused by tax policy, and
in easing the fiscal crisis.

A monetary policy which was hi-
jacked by deficit financing.

A new regime of exchange rate in-
flexibility, which has given a con-
siderable loss of monetary policy
autonomy when juxtaposed with
increased de facto convertibility.

Primitive financial markets with
illiquidity, government control,
and the lack of speculative price
discovery.

The rise of one genuine finan-
cial market - the equity market -
which is large by the standards of
macroeconomics, where there is
genuine liquidity and there is no
government control over prices.