INDIAN ECONOMY AND THE GLOBAL FINANCIAL CRISIS

Abstract

Recession is a period of general economic decline: specifically, a decline in GDP of any nation for two or more consecutive quarters. Global recession is characterized by a global economic growth of 3 percent or less, as defined by The International Monetary Fund (IMF). A major global financial crisis was witnessed by the world in 2008-09. Stock markets fell across the globe, large financial institutions collapsed and governments even in the wealthiest nations had to come up with rescue packages to bail out their financial systems. The prime reason behind this crisis is belived to be an unstable global growth pattern that had been emerging since the year 2000. It was further triggered by deregulation in the US which was caused by low interest rates, surplus funds and tax regulations which transcends the liquidity crunch and set in motion a vicious cycle. Impact of this global crisis was transmitted to the Indian economy in three different ways, the financial sector, exports and exchange rates. The overall impact may be judged in terms of the fall in GDP growth to 6.7 percent in 2008-09 from 9 percent in the previous year. However, India managed to overcome the crisis and fall back on the track of growth leading to a comfortable recovery. Current trends of the world economy indicate signs of danger ahead once again. The US, China and Europe- three major economies of the world are showing signs of weaker growth. The World Bank’s projections for global economic growth are 1.7% in 2023 and 2.7% in 2024. The present study is an attempt to investigate the genesis of the global crisis and explores its impact on the Indian economy. As past experiences reveal, India managed to sustain the crisis quite proficiently and was able to come back on a higher growth path. The thought to ponder lies, whether the Indian Economy will be able to successfully escape such a situation once again.

Keywords: Global crisis, economic growth rate, financial sector, banking system, capital flows