In this article, Shankkar Aiyar discusses the need for a policy response to address the crisis in the savings sector. The discussion comes in the wake of the recent announcement by one of India's largest mutual funds to wind up six of their credit funds. Excerpts:
"Effectively savings worth over $ 4 billion or over Rs 30,000 crore stand demonetised. Sure enough by Friday, a pall of gloom followed and over the weekend middle class investors were caught in a panic. Fund houses have already seen a rush for redemption which could accelerate, come Monday. "
On the contagion in the financial sector:
"The financial sector is the incubator of both growth and crises. The crisis in the savings sector unless urgently attended could engulf the broader political economy. What happens in the financial markets does not stay in the financial sector."
Read the full article here.