Impact of Global Financial Crisis on Indian Economy

Abstract

Banking and financial crisis have been a common phenomenon throughout the modern economic history of mankind. Fortunately, India, like most of the emerging economies, was lucky to avoid the first round of adverse affects because its banks were not overly exposed to sub prime lending. However, the second-round impact of the crisis has affected India quite badly. After a long spell of growth, the Indian economy is experiencing a downturn. Industrial growth is faltering, inflation remains at double-digit levels, the current account deficit is widening, foreign exchange reserves are depleting and the rupee is depreciating. The Sensex fell from its closing peak of 20,873 on January 8, 2008, to less than 10,000 by October 17, 2008. The withdrawal by the FIIs led to a sharp depreciation of the rupee. In this uncertain environment, banks and financial institutions concerned about their balance sheets have been cutting back on credit, especially the huge volume of housing, automobile and retail credit provided to individuals. The trade deficit during the April-August has shot up to a $49.1 billion from a level of $34.5 billion in the corresponding months of the previous fiscal. Employment is worst affected during financial crisis.