Impact of Global Economic Crisis on the Indian Economy

Abstract

The sub-prime crisis that started in 2007 and limited to the US economy has created systemic problem throughout the global fi nancial system following the collapse of a big investment bank. The real economic impact of this fi nancial turmoil is expected to be very large. It has been offi cially stated that developed economies such as the US and the European Union are entering a recessionary phase. Even the world economic growth has been predicted to decline. The impact of this fi nancial crisis on India is also going to be signifi cant, as India is not decoupled with the global macroeconomic behaviour. The service sector, of which two sectors namely 'trade, hotels group' and the 'fi nancing, insurance group', growth is strongly linked with the global economy. Hence, any decline in the global economic activity is expected to have adverse impact on the domestic services growth. On infl ation front, this crisis indeed brought down the infl ationary expectations as it led to decline in the world oil prices to around US$ 70 per barrel after reaching a peak of US$ 142 in July. This would have positive impact on the domestic economy through reduction in overall interest rate structure, which could stimulate domestic demand. On the external sector front, we might see a fall in the foreign exchange reserves due to outfl ow of short-term capital in the short term. Together with this, predicted fall in exports would result in weak rupee. But, given the strong domestic fundamentals, we do expect that this adverse impact is limited only to the short term and there would be resilience in the economy in the medium term once the demand and investments pick-up. On the reforms side, the signifi cant adverse impact would be the possible shelving of much-awaited fi nancial sector reforms that is expected to enhance fi nancial inclusion.

Applying innovative food cost management practices in inflationary times

“…According to Cecchetti and Moessner (2008) this is the case for emerging economies as the share of food as a part of the consumption basket is higher (30 percent) and this further expands the economic impact of food inflation. Bhanumurthy (2009) also blames the increase in crude oil prices (which reached a peak of $148 a barrel in the middle of 2008) for the rise in world food prices, by stimulating a shift in agricultural activity towards the production of bio fuels.…”