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The Global Economic Crisis: Impact on India and Policy Responses

Author

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  • Kumar, Rajiv

    (Asian Development Bank Institute)

  • Vashisht, Pankaj

    (Asian Development Bank Institute)

Abstract

India'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.

Suggested Citation

  • Kumar, Rajiv & Vashisht, Pankaj, 2009. "The Global Economic Crisis: Impact on India and Policy Responses," ADBI Working Papers 164, Asian Development Bank Institute.
  • Handle: RePEc:ris:adbiwp:0164
    as

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    File URL: http://www.adbi.org/working-paper/2009/11/12/3367.global.economic.crisis.india/
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    Cited by:

    1. Kucera, David. & Roncolato, Leanne. & von Uexkull, Erik., 2010. "Trade contraction in the global crisis : employment and inequality effects in India and South Africa," ILO Working Papers 994594013402676, International Labour Organization.
    2. Reddy, Kotapati Srinivasa & Nangia, Vinay Kumar & Agrawal, Rajat, 2014. "The 2007-2008 global financial crisis, and cross-border mergers and acquisitions: A 26-nation exploratory study," MPRA Paper 60148, University Library of Munich, Germany.
    3. 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.
    4. Bhuyan, Biswabhusan & Sethi, Dinabandhu, 2016. "An Augmented Taylor rule for India’s Monetary Policy: Does Governor Regime Matters?," MPRA Paper 75287, University Library of Munich, Germany.

    More about this item

    Keywords

    india global financial crisis; gdp growth;

    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

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