We have got many queries from students asking about the impact of the ongoing slowdown/recession on the Indian Economy.
Yes, the Indian econmy will get affected because it has become global in nature over the years since economic reforms took place in 1990s. Many of its key sectors like IT, BPO are linked to the global economy and are directly impacted by global happenings. But the question is: Is the situation as bad as in the US?
The answer is NO. You have to see the stuctural facts. People in India are panicking because the sensex is diving down. But it has to be understood that sensex is no indiacator of economic-well being of a country. There is a difference between Dow going down and Sensex going down. In the former, the fall is happenning due to a sever credit crunch and resultant bankruptcy of key financial institutions, all which has taken place due to a bursting of the housing bubble. so there is a proper economic problem in the US which is taking toll on its stock markets.
Coming to India, sensex is going down because the FIIs which had invested hugely in Indian stock markets are taking the money back by selling their stocks to refuel their declining coffers in the US. There is nothing wrong as such in the Indian economy. All our banks are maintianing global standards of liquidity and their exposures in speculative sectors like the real estate have been kept to minimal thanks to the RBI. Our inflation rate is coming down due to fall in commodity prices and our growth rate is still one of the best in the world. so there is nothing to be panicky about.
Many experts are citing the recent sacking of Jet employees as an indiactor of Indian economic recession. I would tend to disagree because the sacking took place because the company felt it needed restructuring according to its means and needs. anyway, fall in fuel prices will see some relied for the airline industry in the near future. it is a sector-specific phenomena and shouldnt be linked to the whole economy.
by:
Mukul Sharma
IAS Mentors
