In this discussion paper, we argue for an active role for the state under all circumstances, given the stage of economic development in India. We suggest that India moves away from ideology-based policy choices to context-based choices. Our analysis highlights the fact that the India’s context requires the Indian state, along with Indian households and the business, to invest in enhancing their ability to grow. If not, India runs the risk of not being able to realise its potential.
Consistent investment in economy’s ability to grow would not only provide for better life for people, it would also help financial markets avoid episodes of exuberance and despair – episodes that have very little to do with volatility of economic growth but have often forced the central banks to rescue financial investors or tailor monetary policy that provides them with the ‘central bank put’.