The Impact of Global Economic Recession on Indian Economy

Abstract

The US economy accounts for 4 of the world's GDP. The dream development of USA was busted when the World major financial giants like Lehman Brothers, Bear Sterns, AIG, Merill Lynch etc. saw the unprecedented collapse of financial giants. The large Banks in US according to economists and financial experts are like dead man walk- ing .A sober assessment of the growing mountain of losses from bad debts, measured in today's market place would overwhelm the value of the banks...and they are insolvent (Stere lohr 2009). Simon Johnson a former chief economist at the IMF estimates that the US banks have a capital shortage of $ 500 billion. In a more severe recession it will take $ Itrillion or so to capitalize the banks. It also estimated the potential losers from and other credit Securities originated in the USA to $ 2.2 trillion. The IMF also has estimated USA and European Banks would need at least $ 500 billion in new capital in 2009.The Wall Street collapsed greasing the wheels of financial tsunami. The ripples of this were witnessed on all the economies on the globe. But the degree and magnitude of this fall differed from economy to economy depending on their dependency on America and the fundamentals of their respective economies. The average spending of American consumers reduced significantly and that resulted in reduced demand for imported goods as well as the domestic goods. Demand for the goods reduced. The produced goods remained in godown of firms lacking any demand. Producers either reduced or stopped the production.