are five mitigating factors: (a) financial repression in banks, (b) high and volatile inflation, (c) somewhat regular explicit bailouts, (d) misplaced confidence, and (e) high growth (by international and historical standards). The first three have considerable economic cost. So we cannot take pride in the fact that there are less financial crises in India. Even if we do not face costs of an occasional financial crisis, we need to incur persistent costs of the first three mitigating factors. The fourth is not a reliable hedge against systemic risk. So it finally comes to relying on growth to take care of systemic risk. However, this has its own difficulties. High growth rate has to be a matter of choice and not a matter of compulsion for the purpose of taking care of systemic risks. So it is not a good idea to use growth as a way to take care of (and hide) systemic weaknesses. In any case, the fact that growth has so far taken care of systemic risks does not imply that the inherent weaknesses do not impose their costs on the economy. The policy implication is clear. There is a need to reduce the vulnerabilities and alongside reduce the role of costly or unreliable mitigating factors. Then there can be higher, stable and meaningful growth. (Paper was presented at the GL-UB Finance Conference, 27th August, 2012)
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