(b) opting for high inflation and indirectly defaulting on public debt in real terms, and (c) bailing out investors. But the Europeans did not do any of this in a significant way. It is also interesting that for a long time there was confidence in Euro denominated bonds even if these were issued by countries like Greece or Italy which had credit risk (as distinct from currency risk). But this kind of confidence was misplaced and eventually turned out illusory. Now the Europeans are confronting the systemic crisis expost. We, in India, are not doing this ex-ante even after the European experience (see Financial Stability Reports of RBI). But how come we have not faced a problem?
Second, the government needs to cut fiscal deficits. The usual emphasis is on cuts in subsidies. But there is also a need to reduce tax evasion and tax exemptions. It is, in my view, not as difficult as it is usually made out to be. Third, the public authorities in India can buy an international credit line, like Columbia, Mexico and Poland have done (Singh, 2012). This is cheaper than holding foreign exchange reserves as a safeguard against balance of payments difficulties. Next, given that there is considerable home bias at present, the public authorities can encourage ordinary households to invest abroad (so that all their eggs are not in the home basket). However, this will need to be done gradually over time given ???????????????????????????????????????????????????????????????????????????????????Q??????????????????A?????????????????????????M???????????????????%????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????Q???????????????????????????????????????????????????????????????????????????????????????????Q???????????????????????????????????????????????Q??????????????????????????????????????????????????????????????????????????????????????????%??????? ??????????????????? =$??????????????????????????????????????????Q????????????????????????????????????????????Q???????????????????????????????a????????????????I???d?????????????????????Q?????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????9????%????????????????????????????????????????????????%?????????????????????????????????????????????????????????????I $??!????????????????????????????????????????????????????M?????????????????????
?????????%?%???????????????????????????????Q????????????????????????????Q?????????????????????????????????Q???????????????????????????????????????????????????????!?????????????????????????????????????????????????????%????????????????????????Q???????????????()%????????????????????9???????????????????)?????????????????????????Q???????????????????)????????????????????????Q???UL???????????????????????????????????????????????????????????????????? ????????????????????????????????????%???????????????????????????]????%??????????????????????????????????????????????????????????????????????????????????????UL??L????????????????????????!????????????????????????????????????????????????????????????? @???????????????!?????????????????????????????????????????????????????????????????????M???????????????????????????????A???????????????????????????????????????????
IH??M1H????????????????????????????????????????Q??????????????????????????????????????????????????????????????????]??????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????? ????????????????????????????????????%??????????????????????????????????????? =$???????????????????????9??????????????????????????????????????????UL?????????????????????????????????????????????????????????????????????????????????????????????????????????????????%??????%???????????????????????????????%??????????M?????????????????????????????????????????????????????????? =$?????????????????????????????????????????????????????????Q???????????????????????????????????????????????????????????????????%??????%???????????????I $????????????????????????????????????????????????????????()???????????((?((