“THE GLOBAL FINANCIAL CRISIS AND ITS IMPACT ON INDIA”
D.GOMATHI
HEAD OF THE DEPARTMENT
MANAGEMENT STUDIES
MAHARAJA ARTS AND SCIENCE COLLEGE
COIMBATORE. TAMIL NADU
ABSTRACT
The World has not seen anything of this magnitude Since the Great Depression
that originated in advanced economies. The Global financial situation continues to remain
uncertain. What started off as a Sub-Prime crisis in the U.S housing mortgage sector has
turned into Global banking crisis, global financial crisis and now a global economic
crisis. Losses from sub-prime mortgage have created a liquidity crisis or credit crunch,
which in turn, have triggered a global slowdown. Liquidity crunch is a situation when the
price system does not work any more to make supply of loans equals to demand for
loans.
Fortunately Indian Banking system has not had direct exposure to the sub-prime
mortgage. But as a result of global liquidity squeeze overseas source of funds dried up for
Indian banks and corporate, forcing to shift their credit demand to the domestic banking
sector. Lehman Brothers’ failure increased the risk aversion of the Indian banking
industry.
The Global financial crisis stated visibly impacting the Indian economy from
September 2008 onwards. It was believed that the impact on Indian economy would be
only marginal. The impact varied from country to country. The real sector effects on
India are primarily felt through the exports channel due to the slackening of global
demand for Indian products. Major Job losses happened because of decrease in
production. The government has been responding with bailout packages through which
more and more liquidity is being made available and interest rates are gradually brought
down. With sound and determined economic policies we should be able to recover a
growth from the crisis. Economist focuses recovery at the end of 2009 or at the first
quarter of 2010.