The recommendations of the Thirteenth Finance Commission, made in the context of the fiscal stress that was experienced during the global crisis, include relaxation of fiscal targets for purposes of macrostabilisation, preparation of a fiscal adjustment programme for 2010, raising both public and private investment by creation of fiscal space for government capital expenditure and ensuring fiscal viability. The commission's emphasis on allowing for macrostabilisation as a means of raising productive investment is unexceptionable, so too are many of the reforms that have been suggested. However, the lack of an adequate analytical framework has made the overall recommendations less than satisfactory. This inadequacy is reflected in a failure to identify the basic conditions that call for anti-recessionary measures and their optimal combination, a neglect of distortionary and gdp-reducing effects of subsidies, viewing outlays on human resource development as current rather than capital expenditure, a neglect of conditions governing crowding in and crowding out of investment, treatment of disinvestment as part of investible resources and the clubbing of domestic and external debt and of debt held by the public and the Reserve Bank of India.
The current financial crisis should be viewed as a network crisis, because due to a whole series of deregulation measures, financial reforms and technological and financial innovations, the world has become closely networked into a global market, with laws, and policies functioning within national boundaries. This essay points out that the increased integration of the global market today brooks no further postponement of major reforms. The risk is that if sound, transparent and effective regulation is not built into the international financial architecture to foster open trade in goods and services, emerging markets would neither have the confidence for investment abroad, nor would they have the confidence to open their markets to higher volatility and contagion risks. This crisis therefore is likely to trigger considerable changes in the way we think about the behaviour of markets and the proper role of regulation and governments, particularly in crisis management. What is needed is a dynamic, evolutionary, interactive, and holistic understanding of how complex markets evolve and mutate.