The Global Financial Crisis and Its Effects on the Indian Economy

Let’s understand the concept of global economic crisis first. It is important before proceeding to analyze its impact on Indian economy. Global economic crisis refers to the financial crisis owing to the great depression of 1930. It is an upshot of profound economic recession, which commonly refers to business cycle contraction and decelerated activity over a long period of time. It is a situation where macro indicators like gross domestic product, employment, capital utilization, household incomes and business profit fall and bankruptcies as well as unemployment rates rise. This global financial crisis is among the greatest financial challenges of the world economy, which originated in the United States. It began in July 2007, when the credit crisis started with the loss of confidence by US investors in the assessment of sub-prime mortgages, which caused a liquidity crunch. With globalization, the entire world is affected by the crisis and its impact can be very well witnessed all over.

It is often predicted that India will be one of the largest markets in the future. This is primarily because India is considered to be one of the largest developing countries in the world. With the assimilation of the Indian economy and its financial markets with the rest of the world, the country experienced its worst slowdown on the back of global headwind, domestic macroeconomic inconsistency and policy reversals on the financial front. The risks arose mainly from the impending hitch of capital flows on an unremitting medium term basis from the anticipated slowdown of the global economy, particularly in advanced economies and from some elements of prospective financial alterations. In India, the adverse effects have been chiefly in the equity markets due to the setback of portfolio equity flows and the affiliated effects on the domestic Forex market as well as on liquidity conditions.

Impact of economic crisis on different sectors in India

Impact on the IT sector

With the global economic crisis, the IT sector of the country is facing uncertainty, especially the software industry. About 30,000 jobs in this sector have been affected because of the financial crisis in the United States as the industry has been largely dependent on it. Approximately 58% of the revenue was generated from US-based clients, owing to which, the industry had faced and perhaps till sometime will be facing hard days on the economic front.

Impact on the Indian banking system

One of the prime aspects of the current financial mayhem has been the lack of an apparent contagion of global economic crisis being felt by banking systems in budding economies, particularly in the continent of Asia. The Indian banking system as well has not been affected by it similar to other banks in the rest of the continent since it is not directly exposed to the sub-prime mortgage assets. Both in the public sector and in the private sector, Indian banks are financially sound, properly regulated and well capitalized.

Impact on stock and Forex market

The crisis had a great impact on the Indian stock and Forex market. The stock prices in the country have been harshly affected by foreign institutional investors (FII). The most prominent decrease in the manual contract category is in the Automobiles and Transport sectors where employment has declined by 12.45% and 10.18%, respectively.

Apart from these, the global economic crisis has affected some other sectors of the country as well. However, if these areas are properly handled, it will help in overcoming the financial crisis with ease and also help them survive through the tough times.

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