Effect of The Global Meltdown on the Indian Economy

“Whatever is going to happen, will happen; just don’t let it happen to you”The year 2008, one of the worst years in the world’s economic history, experienced a major global meltdown. This global meltdown led to job lay-offs across the world. It claimed its first casualty in Los Angeles with a 45 year old NRI killing 5 members of his family before taking his own life. According to the Labor Department’s report, the unemployment rolls swelled by 2.2 million, over the last year, to 9.5 million. Different Indian associates and CEOs of multinational companies have started feeling the heat. The recent downturn is weighing on the minds of employers.

Although India has not been directly impacted by the global financial crisis, we should be cautious about the indirect knock-on effect of the global crisis. According to the GET report, over 50 million could lose their jobs by 2009 worldwide. The worst thing is that as we live in an agrarian economy where the unemployment rate is already high and 60% of the population is still dependent on agriculture, the rate of unemployment is rising further due to these worldwide lay-offs as most of the students of India go abroad for job purposes.

Going further, not only the labor market, but also the financial market, IT/ITes, export and manufacturing sectors have been affected adversely. The IT/ITes sector is the major component of India’s growth because the share in GDP given by agriculture has been taken up by the services sector in recent past.

The global meltdown is not only affecting the services sector, even the industrial sector has been affected adversely. Major projects and expansion plans are being reviewed by the corporate sector and they have started focusing on reducing costs and borrowings. The first half of the year 2009 is considered as the worst period. Despite all these problems, the biggest problem that still exists from the past is ‘Information asymmetry’. It would be fine if our Government or the members of the major corporate sector don’t know the problem or where to find the answer, but the truth is that they know both and are waiting for other countries to take steps.

The most important challenge faced by our Government during this time is to ensure a balance between inflation and growth. If our economy experiences high growth rates, it will lead to major exports from our nation which will affect our domestic market and if economy experiences a decline in the inflation rate, it will lead to major imports to our country which will affect the government budget.

Though the impact of global financial crisis on India is stronger than expected, it will be the first to recover if the Government takes correct decisions and changes the established fiscal and monetary policies. The wholesale price index and the consumer price index need to be watched. The Government should ensure continuous credit flow at a low rate of interest to the private sector and especially to small and medium enterprises for their expansion and the growth projects. Low rate of interest is not the only way of boosting the economic growth. Increase in government expenditure will stimulate the demand so that industry will produce which will effect the economic growth. The Government should also initiate measures to address the mutual funds and non-banking financial companies. They should also keep an eye on the market manipulators and the institutional speculators, as when most individual investors lose when the market falls, the institutional speculators make money when there are financial speculative transactions.

Hence, it can be seen that although we have been hit hard, but “Every black cloud has a silver lining”; with stern steps being taken in the right direction, we shall soon come out of this crisis without much damage.

Priyanka Goel

[Image source:http://www.flickr.com/photos/lavannya/327803568/]