Global Economic Crisis and Indian Economy

Abstract

This paper tries to examine the extent of the impact of global financial crisis on the Indian Economy. While doing that, it argues that the Indian Economy was already in a slowdown phase, largely due to deceleration in the exports growth and also due to some cyclical factors. With the help of a structural quarterly macroeconometric model, this paper concludes that significant part of the fall in GDP growth due to global crisis is expected to show up in 2009–10. The model estimates the crisis impact on growth to be around 2 per cent in 2009–10. But in 2008–09, fall in GDP growth was largely contributed by the cyclical factors and by sharp rise in the food and fuel prices. The paper also argues that fiscal and monetary stimulus packages could stimulate aggregate demand only in the short to medium term. In the long term, investments (particularly from private sector) would be an important determinant for strong and sustainable economic recovery.