India?s recent experience validates the ?impossible trinity? you refer to in your editorial (?Capital controls?, Jan 31). An open capital account with a pegged exchange rate means we are forced to ?import? America?s monetary policy, which, as the Fed?s panic rate cuts demonstrate, operates in response to credit conditions in the US market. In crisis times, selective application of capital measures should not be seen as a reversal of India?s core policy orientation. Malaysia used emergency controls in 1997, and today all Western economists think it did the right thing.
?Ramesh Ramanathan, Mumbai
Rub of the matter
The second rate cut in eight days by the US Federal Reserve, this time on Wednesday by 50 basis points, is a clear admission of the fact that America is finding it difficult to stave off a recession. The woes bedevilling the US economy should serve as eyeopeners to our government and RBI, too. The least they can do now is to take measures to stop effects of a possible American recession spilling over into India. Already, banks in this country have taken long exposures in the home loan sector. Personal and consumer loans are freely given without ascertaining the repaying capacity of borrowers. All prudent lending norms are overlooked. Economic activities are cyclical in nature. Our economy is not fully immune to cyclical trends. The rub is, recession affects us more because India is a poor country.
?Sudhir K Bhave