Introduction

The Indian economy looked to be relatively insulated from the global financial crisis that started in August 2007 when the sub-prime mortgage crisis first surfaced in the United States (US). In fact, the Reserve Bank of India (RBI) was raising interest rates until August 2008 with the explicit objective of cooling the economy and bringing down the gross domestic product (GDP) growth rate, which visibly had moved above the rate of potential output growth and was contributing to the build up of inflationary pressures in the economy.¹ But when the collapse of Lehman Brothers on 23 September 2008 morphed the US financial meltdown into a global economic downturn, the impact on the Indian economy was almost immediate. External credit flows suddenly dried up and the overnight money market interest rate spiked to above 20% and remained high for the next month. It is perhaps judicious to assume that the impacts of the global economic downturn on the Indian economy are still unfolding. Against this backdrop, this paper attempts an analysis of the impact of the global financial crisis on the Indian economy and suggests some policy measures to put the economy back on track.

Broadly, the paper has been divided into six sections. After summarizing the severity of the current crisis in Section 2, Section 3 deals with the impact of the crisis on the Indian economy. Section 4 discusses the monetary and fiscal policy responses to the crisis, while Section 5 provides a critical assessment of the policy responses. In the final section we recommend some policy measures that are needed to reverse the downturn.

Download this Paper [ PDF 505.8KB| 33 pages ].

Comment(s)

There are [0] comment(s) for this entry. Post a comment.