Global Financial Meltdown: Causes and Impacts on India
Posted: 9 Dec 2009
Date Written: December 9, 2009
Abstract
India’s engagement with the global economy became deeper from the 1990s. Now the global economy has great impact on Indian economy too. The global crisis has hit India through a "sudden stop" of capital inflows and a collapse of both external and domestic demand. India's growth rate in 2008-09 was 6.7 per cent as compared to 9 per cent in the previous year. The Indian financial system is not directly exposed to the "toxic" or "distressed" assets of the developed world. This is not surprising since Indian banks have very few branches abroad. However, the indirect impact on the economy because of the recession abroad is very much there. The "decoupling" theory does not hold well. The deepening global integration of India has made it vulnerable to the global financial crisis. However, three factors helped India to cope with the crisis and soften the blow. They are: (1) the robust, well capitalized and well-regulated financial sector; (2) gradual and cautious opening up of the capital account; and (3) the large stock of foreign reserves.
Keywords: Recession, India, Bank
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