Five years later, scars remain

LIFE AFTER LEHMAN While India weathered the Wall St storm, it is now staring at a crisis partly of its own making

NEW DELHI: On October 14, 2008, exactly a month after the US investment banking giant Lehman Brothers went bust triggering a worldwide financial crisis, Prime Minister Manmohan Singh conferred with finance minister P Chidambaram and the then Reserve Bank of India (RBI) governor Duvvuri Subbarao as they tried to figure out how to perk up nervous banks strapped for cash.

No official word came on details of the meeting that followed previous reassuring statements to depositors, lenders and borrowers by the policy-makers earlier in the day. The deputy chairman of the planning commission, Montek Singh Ahluwalia, and the then finance secretary A run Ramanathan, who was heading a panel to suggest liquidity boosters, joined the meeting.

Only a week earlier, apart from cutting the mandatory cash deposit requirements for banks by 1.5 percentage point last week, RBI had offered ` 20,000 crore for mutual fund industry to enable it handle redemption pressures.

“We believe everything is under control. I cannot tell what measures are going to come. We have done everything... to be done,” was all Subbarao would say.

What followed in the weeks and months that followed, however, was a slew of measures to help banks go ahead with stalled lending programmes to boost the economy and infuse confidence.

RBI slashed the repo rate, its key lending rate, by 3.5 percentage points between October 2008 and January 2009. This was followed by an unprecedented fiscal stimulus package for industry through tax breaks, cheaper finances and lower indirect taxes.

Add to this the ` 40,000-crore that the government handed out to its employees through pay commission arrears, kept the consumer spending buoyant.