The Global Economic Crisis: Impact on India and Policy Responses

ADBI Working Paper No. 164

33 Pages Posted: 16 May 2010

See all articles by Rajiv Kumar

Rajiv Kumar

India Habitat Centre - Indian Council for Research on International Economic Relations (ICRIER)

Pankaj Vashisht

affiliation not provided to SSRN

Date Written: November 1, 2009

Abstract

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.

Keywords: Global Crisis, Impact of Crisis on Indian Economy, Crisis and India

JEL Classification: G01, E66

Suggested Citation

Kumar, Rajiv and Vashisht, Pankaj, The Global Economic Crisis: Impact on India and Policy Responses (November 1, 2009). ADBI Working Paper No. 164. Available at SSRN: https://ssrn.com/abstract=1606482 or http://dx.doi.org/10.2139/ssrn.1606482

Rajiv Kumar

India Habitat Centre - Indian Council for Research on International Economic Relations (ICRIER) ( email )

Core 6A, 4th Floor
India Habitat Center, Lodhi Road
New Delhi 110003
India

Pankaj Vashisht (Contact Author)

affiliation not provided to SSRN ( email )

No Address Available

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