The Global Economic Crisis: Impact on India and Policy Responses
AbstractIndia's financial sector is not deeply integrated with the global financial system, which spared it the first round adverse effects of the global financial crisis and left Indian banks mostly unaffected. However, as the financial crisis morphed in to a full-blown global economic downturn, India could not escape the second round effects. The global crisis has affected India through three distinct channels: financial markets, trade flows, and exchange rates. The reversal in capital inflows, which created a credit crunch in domestic markets along with a severe deterioration in export demand, contributed to the decline of gross domestic product by more than 2 percentage points in the fiscal year 2008–2009. In line with efforts taken by governments and central banks all over the world, the Government and the Reserve Bank of India took aggressive countercyclical measures, sharply relaxing monetary policy and introducing a fiscal stimulus to boost domestic demand. However, this paper argues that with very limited fiscal maneuverability and the limited traction of monetary policy, policy measures to restore the Indian gross domestic product growth back to its potential rate of 8–9% must focus on addressing the structural constraints that are holding down private investment demand.
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Bibliographic InfoPaper provided by Asian Development Bank Institute in its series ADBI Working Papers with number 164.
Length: 33 pages
Date of creation: 12 Nov 2009
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india global financial crisis; gdp growth;
Find related papers by JEL classification:
- E66 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General Outlook and Conditions
- G01 - Financial Economics - - General - - - Financial Crises
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-22 (All new papers)
- NEP-CWA-2010-05-22 (Central & Western Asia)
- NEP-DEV-2010-05-22 (Development)
- NEP-MAC-2010-05-22 (Macroeconomics)
- NEP-MON-2010-05-22 (Monetary Economics)
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- Kucera, David & Roncolato, Leanne & von Uexkull, Erik, 2012. "Trade Contraction and Employment in India and South Africa during the Global Crisis," World Development, Elsevier, vol. 40(6), pages 1122-1134.
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