Positive Impact of Global Financial Crisis on Indian Economy


By

Ms. Mini Amit Arrawatia
Assistant Professor
Arya Institute of Engineering and Technology
Jaipur
 


ABSTRACT

Behind every dark cloud there is a silver lining. As Newton's third law says "Every action has equal and opposite reaction" which was proved long ago. When the world is suffering of financial crunch cant we expect any positive impact of this financial crisis on our economy? Being a rational creature it is the human tendency to find out a positive way out in order to get prove its efficiency in negative scenario. In this paper I have focused on the positive impacts of Financial Crisis on Indian Economy as well as a better future for tomorrow.

INTRODUCTION

The turmoil in the international financial markets of advanced economies, which started around mid-2007, has exacerbated substantially since August 2008. The financial market crisis has led to the collapse of major financial institutions like Lehman Brothers, Merill Lynch etc. and is now beginning to impact the real economy in the advanced economies. As this crisis is unfolding, credit markets appear to be drying up in the developed world.

India, like most other emerging market economies, has so far, not been seriously affected by the recent financial turmoil in developed economies. But nothing lasts for long. Everyday we can't expect our economy to be in boom. The economy moves in various phases i.e. from expansion to peak and then peak to recession and along the way of recovery and once again to peak. This is because of human emotions i.e greed during expansion as the cause and sufferance during recession as the result.

The term financial crisis is applied broadly to a variety of situations in which some financial institutions suddenly lose a large part of their value. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises and sovereign defaults. The current financial crisis is the worst of its kind since the great depression of 1930s. It becomes prominently visible in September 2008 with the failure of several large US based financial firms. The global financial meltdown has spelt disaster for the world economy in general and for the US and the European economies in particular. But the interesting fact is that when the world's developed economies are suffering, the developing countries like India and China is still spending money in many projects.

THE INDIAN APPROACH IN CURRENT SCENARIO

Cautioning against the use of word "recession" for Indian economy, Finance Minister P Chidambaram says India's growth would moderate in this difficult year, but would still be second-fastest in the world at the rate of 7-8 per cent. According to him a recession is defined as two successive quarters of contraction of GDP. He wishes to emphasize that India is nowhere near a recession. We may expect a moderation in growth rate in the current year to a level between 7 and 8 per cent. India would still be the second-fastest growing large economy in the world Chidambaram says.

Giving a positive projection on the country's economic scenario, P.M Manmohan Singh said India could regain its annual growth rate of 8% to 9% as the world's economy could recover partially the present crisis by September this year.

According to the Planning Commission Deputy Chairman, Montek Singh Ahluwalia, "The global financial turmoil will not have any significant impact on the country's financial system as India is not exposed to the new and innovative financial instruments that triggered the meltdown. We have not been as exposed to these new and innovative instruments, which have been the source of financial distress internationally. So the direct impact on the Indian financial system is not going to be significant at all."

There will be indirect effect as regards to India, the country is fortunate to have large foreign exchange reserves and hence it would be able to tide over any short-term disruption in capital inflows.  The strengths of the Indian economy are substantial and capital inflows would eventually resume the normal course.
 

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Source: E-mail November 13, 2010

          

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