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.