Channel: Economy

Tuesday, April 06, 2010
Impact of recession on Indian economy
Over the next four weeks we will discuss and analyse the success of the strategies
Tables & Graphs

Over the next four weeks we will discuss and analyse the success of the strategies that the Indian and British Governments utilised to reduce the damage caused by the economic crises to their respective economies.


By early 2008 there were warning signals across the world that global economy was about to go into a state of turmoil. The investment bank Bear Sterns had already collapsed and the American economy was about to go into a tail-spin taking most of the world with it.


What impact did the economic crises have on India can be demonstrated through some of the economic indicators presented here. Additionally we look at the response of Indian Government to stop its (economic) ship from hitting patchy waters.


Foreign Trade
The impact on foreign trade was really felt in the year 2009-10. Exports growth rate dipped by 11% and imports by almost 14%. The Government of India did create multiple fiscal stimulus packages for exporters that did arrest the slide. Prior to 2008 the exports had been growing at a tremendous rate of over 20% per annum.


Foreign Direct Investment (FDI) inflows
Given the rest of the world was (and still is) suffering from the biggest post war depression, the impact on foreign direct investment inflows into India was likely to be severe. A large number of private equity funds suffered major losses and witnessed investor sources vanish. A significant number of corporate investors also receded back to their home territories. But despite this, India was still able to attract the same level of FDI in 2008 as it did in 2007. It is likely to retain the same levels in 2009 as well. This can be attributed to the Government’s efforts in the last two years to attract significant international and private capital in the infrastructure sectors.


Foreign Exchange Reserves
India may not have the foreign exchange reserves as those of China, but it remarkably maintained the level of Forex reserves given it witnessed the highest oil price in history. India has a significant forex expenditure as it imports 75% of its oil requirements. The Government did not tinker much with the Forex policies as other outflows such as payments for goods and services imports had also declined. The inward remittances and deposits made by Non Resident Indians also helped maintaining the Forex reserves.


GDP Growth Rates
Although the GDP did take a 30% hit and dropped to 6.7% but most countries would do anything to even have that rate of growth even in the best of times. So India did fairly well in keeping the economy ticking along. Some say that India is decoupled from the global economy. That certainly is stretching it too far but the underlying factor is that India also has a strong domestic consumption (also see Table : Index of Industrial Production) to counterbalance any recessionary trends in the global economy.


It is on course to reach the 9% GDP growth rate target in the year 2010 but there are inflationary pressures looming that the Government has to deal with.


The period where Indian economy suffered a slight dip was limited and it has clearly shown remarkable resilience. Next week we will compare the performance of Indian Government in maintaining its economic growth with that of British Government.


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