7.26         ndian     onom
     government intervention78 in the economy, such           in salaries of its employees, etc. Assimilation of
     as deficit financing, monetary management, etc.          innovations by the entrepreneurs and search for
           What the governments may do if depression          new frontiers of enterprise do play a very vital role
     visits the economy? The simple answer the world          in the process of recovery provided these activities
     has been able to find is to repeat the policy measures   are at first incentives by the governments.
     of 1929. The best way to avoid depression is not               The Euro-American economies recovered
     to let it visit. This is why every modern economy        out of the Great Depression with the help of the
     keeps extra-vigil on the major symptoms of its           measures cited above. Such recoveries have been
     economy so that the prevention-measures can be           seen many times around the world when economies
     taken in time and depression is avoided.                 recovered from slowdown or the recessionary
                                                              phases. The best example of recent times could
        recoVery                                              be cited from India of 1997 to 2002 when the
                                                              economy suffered severe bouts of slowdown and
     An economy tries to come out of the low production       recession.79
     phase to survive. The low production phase might
     be depression, recession or slowdown with the               Boom
     former being the worst and rare, governments
     take many new fiscal and monetary measures to            A strong upward fluctuation in the economic
     boost demand and production and ultimately a             activities is called boom.80 As economies try to
     recovery in an economy is managed. The business          recover out of the phases of slowdown, recession
     cycle of recovery may show the following major           and depression at times the measures taken by
     economy traits:                                          the governments as well as the private sector
           (i) an upturn in aggregate (total) demand          might put economic activities as such which the
                which has to be accompanied by increase       economic systems fail to digest. This is the phase
                in the level of production;                   of the boom. The major economic traits of boom
                                                              may be listed as given below:
          (ii) production process expands and new
                investments become attractive;                      (i) an accelerated and prolonged increase in
                                                                          the demand;
        (iii) as demand goes upward, inflation also
                moves upward making borrowing                      (ii) demand peaks up to such a high level that
                cheaper for investors;                                    it exceeds sustainable output/production
                                                                          levels;
         (iv) with an upturn in production, new
                employment avenues are created and               (iii) the economy heats up and a demand-
                unemployment rate starts declining; etc.                  supply lag is visible;
           With the above symptoms, people’s income               (iv) the market forces mismatch (i.e., demand
     go for a certain increase which creates new                          and supply disequilibirium) and tend
     demand and a cycle of demand and production                          to create a situation where inflation starts
     (supply) starts playing hand-in-hand to recover the                  going upward;
     economy. To recover an economy, governments                   (v) the economy might face structural
     usually go for tax-breaks, interest cuts, an increase                problems like shortage of investible
       78.    Suggested by John Meynard Keynes in his seminal   79.    Economic Surveys, 1996–97 to 2002–03, MoF, GoI,
              work The General Theory of Employment, Interest          N. Delhi.
              and Money (New York: Harcourt, 1935).             80.    Stiglitz & Walsh, op. cit., p. 945.