Countries must master the art of policy exit too!
Over the past decade, economic policymaking across the world has been defined by one overriding imperative: crisis management. Governments and central banks have lurched from one emergency to another - be they pandemics, wars, inflation shocks, banking instability, commodity spikes, or supply-chain disruptions - deploying extraordinary measures to preserve stability and sustain growth.
Yet the defining challenge of the next decade may not be how governments respond to crises. It may be how they exit them.
Emergency interventions are often unavoidable. But history shows that many governments falter not in confronting crises, but in unwinding the exceptional measures introduced to tackle them. Temporary support morphs into permanent distortion. Subsidies become entitlements. Fiscal stimulus becomes structural dependence. Protectionist measures outlive the strategic rationale that justified them. The real test of economic statecraft is therefore not just managing disruption; it is restoring normalcy without undermining credibility.
The Hidden Risks of Prolonged Intervention
The longer extraordinary policy measures remain in place, the greater the risks they create. Liquidity support, if extended too far, distorts financial markets. Fiscal expansion, if normalized, weakens sovereign balance sheets. Industrial policy, if left unchecked, degenerates into protectionism. Regulatory forbearance, if prolonged, conceals rather than resolves stress. These risks rarely manifest immediately. That is precisely what makes them dangerous.
Periods of apparent stability often mask the slow accumulation of structural vulnerabilities. Banking systems look strongest before credit quality deteriorates. Fiscal positions appear manageable until market sentiment shifts. Growth remains steady until distortions begin to bite.
In other words, the cost of delayed exit is not visible in the short term. It is a price that economies end up paying later.
Compounding this challenge is the nature of the global environment itself. What the world is experiencing is not a temporary phase of turbulence-it is a structural shift towards persistent volatility.
Geopolitical fragmentation is deepening. Trade is increasingly shaped by strategic rivalry. Supply chains are being redesigned around resilience rather than efficiency. Energy markets remain vulnerable to conflict-driven shocks. Capital flows are more reactive to monetary tightening and political uncertainty. In such a world, the assumption that normalcy will soon return is no longer tenable. It is against this turbulent global backdrop that India’s recent economic performance stands out.
At a time when many economies have struggled with instability, India has maintained a degree of macroeconomic balance that has strengthened its global credibility. Growth remains relatively robust. Inflation, while significant, has been managed without systemic disruption. The financial sector is far healthier than in previous cycles. Fiscal consolidation, though gradual, has not been abandoned.
This relative stability is not accidental. Over the past several years, the government has helped anchor a policy framework that places increasing emphasis on macroeconomic discipline, institutional continuity, and buffer-building. The clean-up of bank balance sheets, the push towards infrastructure-led growth, the measured approach to fiscal management, and the broader focus on structural reform have collectively strengthened India’s economic foundations.
Equally important has been a degree of policy calibration-avoiding both excessive stimulus and premature tightening, even amid significant external shocks. This has created what may be described as a “stability dividend.” In a world where investors and firms are increasingly sensitive to risk, India is seen not just as a high-growth market, but as a relatively predictable one. That perception is a strategic asset.
The Next Test: Knowing When to Step Back
But the very success of this approach creates its own challenge.
The temptation, after a period of relative resilience, is to do more-to extend support, broaden intervention, and accelerate state involvement in the economy. That temptation must be resisted. The next phase of India’s economic management will require discipline rather than expansion. Fiscal prudence must remain intact despite competing demands. Industrial policy must remain targeted, time-bound, and performance-linked. Financial sector vigilance must not weaken simply because immediate stress has receded. Policymaking must therefore adapt.
The objective must no longer be to “bridge” temporary disruptions, but to operate effectively in a state of continuous uncertainty. This requires a governing philosophy rooted in calibration, restraint, and forward-looking risk management. Importantly, policymakers must internalise a difficult but critical principle: not every risk requires intervention, and not every slowdown requires stimulus. Exit strategies are inherently unpopular. Withdrawing support after it has been extended, normalising policy after prolonged accommodation, and allowing markets to adjust can create short-term discomfort. But these are precisely the decisions that preserve long-term credibility. India has demonstrated that it can manage crises with competence. The next test is whether it can exit from periods of extraordinary support with equal skill. Because in an era defined by continuous disruption, success will not belong to those who intervene the most. It will belong to those who know when and how to stop.
Shishir Priyadarshi is President of the Chintan Research Foundation and former Director of WTO, with extensive experience in international trade, finance, and industry; Views presented are personal.
