India and the Global Economic Downturn

One of the grave issues of recent days is the global economic crisis which has not only affected the developed nations but has had far reaching effects on the developing countries too. The 2008/2009 recession is seeing private consumption fall for the first time in nearly 20 years. According to World Bank, the global economy is going to shrink by 2.9% this year. The US has seen the highest level of unemployment at 9.5% since 1983. It is a well known fact that governments are apprehensive regarding the future of most of the economies which are greatly dependent on the US for foreign investments.

As a consequence of the global liquidity squeeze, Indian banks and corporates have found their overseas financing drying up, forcing corporates to shift their credit demand to the domestic banking sector. 500,000 people were rendered jobless between October to December 2008. Eight major sectors like textile and garment industry, metals and metal products, Information Technology and BPO, automobiles, gems & jewellery, transportation, construction and mining industries were included in the survey by the ministry of Labour and Employment. Inflation in India had turned negative for the first time in more than 30 years, official figures had shown. 30-50% of the business in garment industry has fall – exports have fallen by a much higher 4.8% as compared to the other sectors and there are a number of job losses too.

However, against all odds, India has managed to achieve 6.1 % GDP (Gross Domestic Product) growth in the first quarter (April- June) of the fiscal year. This makes India the second fastest growing major economy after China. Much of this can be attributed by the consumer confidence investors had in the Indian markets even through these bad times. According to the Nielsen Global Consumer Confidence, which polled 26,000 consumers across the globe, “India ranks foremost in consumer confidence as investors have been safeguarded by India’s relatively nascent financial markets.”

Secondly and importantly it was the conservative policies adapted by the Indian Banking system which kept India relatively protected from the impact of the recession. New York Times credits the tough lending standards Y.V Reddy imposed on the Indian banks as RBI (Reserve Bank of India) Governor for saving the entire Indian baking system from the massive sub-prime and liquidity crisis of 2008 and beyond. As Governor, he saw his job as making sure Indian banks did not get too caught up in the bubble mentality. He banned the use of bank loans for the purchase of raw land, and sharply curtailed securitizations and derivatives, and essentially prohibited off-balance sheet financing.

Saving for the future instead of spending on short- term desires is a tendency imbibed in the psyche of the Indian masses. Before thinking at an individual level, the expenditure is always thought collectively in terms of family which makes the entire money- making system unique in India. The government too works on the principle of welfare of the people rather than profit- making. It is this element of the Indian culture maybe which has saved it from the affinity towards insatiability and self-interest prevailing in the West which further facilitated the common objective of working together in times of crisis.

For the past two years, the number of youngsters opting for education abroad has fallen drastically. They have become aware of the inimitable opportunities they can get in India itself, thus instigating the idea of giving their inputs towards the development of their OWN country rather than draining their calibre for another one. Even though the crisis slowed the rate of growth of the economy in the country, it has given a message to the world of the resilience power the economy can manifest in times of adversity.

Prerita Chauthaiwale

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